topic Re: New Construction mortgage questions in Mortgage Loans

New Construction mortgage questions

Lynnow — Sun, 08 Nov 2020 21:35:44 GMT

Since homes are flying off the shelf, my husband and I are thinking about a new construction home in planned new communities where you choose your floor plan and upgrades. How does that work with financing?

Do you start paying the mortgage while they are building?

If not, what happens if financing falls through after it's all built? (our shouldn't but you never know what weird scenario may pop up).

Will the interest rate remain the same 6+ months later after the house is built?

Should we go with their lender?

Re: New Construction mortgage questions

Anonymous — Sun, 08 Nov 2020 23:47:32 GMT

I am buying a new construction home and closing is on the 17th this month, below is based off my experience:

@Lynnow wrote:

Do you start paying the mortgage while they are building? No, the builder still owns the lot/home until it's complete. Once it's completely built you close on the home just like any other home purchase.

If not, what happens if financing falls through after it's all built? (our shouldn't but you never know what weird scenario may pop up). you have to read your contract to see if you can get your earnest money deposit back if financing falls through. But they would just sell it to someone else.

Will the interest rate remain the same 6+ months later after the house is built? I assume this is dependent on the type of loan you choose but yes mine the interest rate is the same for entire length of the loan.

Should we go with their lender? You can shop around lenders, I went with builder's preferred lender because they offered $11k towards closing costs.

Re: New Construction mortgage questions

Lynnow — Mon, 09 Nov 2020 00:53:31 GMT

VERY helpful thank you so much!!!

Re: New Construction mortgage questions

brk1971 — Mon, 09 Nov 2020 16:58:15 GMT

I'm in that process now, and learning tons.

In my case, the builder requires their lender to pre-approve you (along with the earnest deposit) to proceed. They do not (cannot), however, require their lender to be the lender you use for the mortgage. (They can make some concessions contingent on their preferred lender.)

Also, check your contract, as my deal had $7.5k in upgrades and $5k in closing costs included, but only $1500 of that was contingent on using their lender (the rest is in the deal from the builder regardless of the lender I choose).

In my case, the lender had a very attractive rate (Conv @ 2.75% with no OF and no points). I used the loan estimate there to check other rates @ Navy Federal and Mutual of Omaha (through Costco), and presently am awaiting the loan estimates from each of them (both of them told me verbally that they would be better than the builder's lender - but I'm a "let's see the details" sorta guy).

As stated above, there's no mortgage (and no payment on the construction) during the build process, and at the closing date you're essentially buying a completed home. (It's not a construction loan as would be required for a custom build on your own lot.)

Couple tips I picked up from the process:

1. When customizing / upgrading... Be aware that paying for options doesn't always translate to improvements that will appraise at the value paid.

2. As far as deciding which lender to go with - in my case, in a different builder's office and in a different sales meeting a week earlier (that did not result in a deal), I was offered $6k in closing costs for using that builder's lender, but that lender charged a 1% loan origination fee and a 0.25% application and funding fee. Essentially, their offer was "we'll give you this great discount" but they were charging fees that cost me that same dollar amount. Had I not asked about lender fees for their lender, I would have left that meeting thinking it was a discount. So ask about lender fees when you talk to the lender, and compare apples to apples (e.g. your par rate with fees) amongst the lenders you get rates from.

Good luck!

Re: New Construction mortgage questions

MauiMan85297 — Mon, 09 Nov 2020 16:55:16 GMT

@Anonymous wrote:
I am buying a new construction home and closing is on the 17th this month, below is based off my experience:

@Lynnow wrote:

Do you start paying the mortgage while they are building? No, the builder still owns the lot/home until it's complete. Once it's completely built you close on the home just like any other home purchase. This is correct

If not, what happens if financing falls through after it's all built? (our shouldn't but you never know what weird scenario may pop up). you have to read your contract to see if you can get your earnest money deposit back if financing falls through. But they would just sell it to someone else. If financing falls through (meaning you weren't approved for the loan then your earnest deposit is refunded back to you- you typically only lose it if you backed out for any reason

Will the interest rate remain the same 6+ months later after the house is built? I assume this is dependent on the type of loan you choose but yes mine the interest rate is the same for entire length of the loan. You interest rate is locked the month or 2 before you close on the house and if it's a fixed rate it won't change for the life of the term. You would just just pre-approved for the loan at first so the builder knows you can afford the house but rate wouldn't be locked in.

Should we go with their lender? You can shop around lenders, I went with builder's preferred lender because they offered $11k towards closing costs. Always get another quote as it doesn't cost you anything and doesn't hurt your credit score by having multiple lenders pull it as long as it's done 45 days from first pull.

I'm presently going through our 2nd new build and even though they were asking for you to go through their preferred lender giving over $15k in incentives I got them to accept my company (lender) to do the loan and still give incentives (They agreed). I can't legally do my own loan so my boss is doing it for me.

Do you start paying the mortgage while they are building? No, the builder still owns the lot/home until it's complete. Once it's completely built you close on the home just like any other home purchase.

If not, what happens if financing falls through after it's all built? (our shouldn't but you never know what weird scenario may pop up). you have to read your contract to see if you can get your earnest money deposit back if financing falls through. But they would just sell it to someone else.

Will the interest rate remain the same 6+ months later after the house is built? I assume this is dependent on the type of loan you choose but yes mine the interest rate is the same for entire length of the loan.

Should we go with their lender? You can shop around lenders, I went with builder's preferred lender because they offered $11k towards closing costs.

Re: New Construction mortgage questions

Lynnow — Mon, 09 Nov 2020 17:04:37 GMT

Thank you! Are you using a realtor?

Re: New Construction mortgage questions

brk1971 — Mon, 09 Nov 2020 17:20:25 GMT

@Lynnow wrote:
Thank you! Are you using a realtor?

Yes, and this was vital to me learning my way through the deal. If you don't already have one, I recommend using a referral service that has a commission rebate to hire the real estate agent. (Navy Federal has one that I'm using, but there are many others.)

Re: New Construction mortgage questions

Anonymous — Mon, 09 Nov 2020 17:22:37 GMT

@Lynnow

Agree with everything that the other contributors said. We ended up using our builder's lender because they offered us the lowest interest rate.

We are currently using a realtor, but honestly, our realtor hasn't done much. I read through all the contracts and selected our upgrades without her. Maybe she'll come in handy in the next few weeks (tentative closing is 12/10), but I've found that the specialists who work for our builder are extremely helpful!

Re: New Construction mortgage questions

Lynnow — Mon, 09 Nov 2020 17:31:43 GMT

Thank you!! Ok good to know! We do have a realtor and we will probably keep her just to be extra confident with our deal but I didn't know how new construction worked. We never really thought about new construction until we realized small homes built in 1990 would be almost $100k more expensive than building a 4 bedroom/3 bath since the market it so tight !! It's crazy!! I guess We will take advantage of people being inpatient and not wanting to wait until a new construction is built lol

Re: New Construction mortgage questions

brk1971 — Mon, 09 Nov 2020 17:32:56 GMT

@Anonymous wrote:
@Lynnow

Agree with everything that the other contributors said. We ended up using our builder's lender because they offered us the lowest interest rate.

We are currently using a realtor, but honestly, our realtor hasn't done much. I read through all the contracts and selected our upgrades without her. Maybe she'll come in handy in the next few weeks (tentative closing is 12/10), but I've found that the specialists who work for our builder are extremely helpful!

This is a vital (and correct) point - the work done by the realtor is very minimal as compared to an existing sale... and this is why I recommended using a rebate based referral service. It's also important to note that if you go without an agent, the sale price is not cheaper. The realtor's commission is cooked into the cakemix, and becomes extra profit when you go without one. (In my case, the realtor commission is over $10k, and I'll be rebated just under $2k after the close of the house.)

Good luck!

Re: New Construction mortgage questions

Lynnow — Mon, 09 Nov 2020 17:46:03 GMT

Hmm good point. I'm in California so the commission could be 25k out of our pocket. I know the price wouldn't be cheaper I just feel like sometimes salesman/companies (everyone really lol) in California are extra shady and we don't want to be taken advantage of. But I will def look into a referral service this week!

Re: New Construction mortgage questions

MauiMan85297 — Mon, 09 Nov 2020 19:59:58 GMT

My Realtor is a good friend of mine and only used her to get her 2% for my closing costs and she keeps 1% for sitting there and looking pretty.

Realtors don't do much at all for new construction unless it's a spec home then you can negotiate and most if not all builders don't negotiate on upgrades

Re: New Construction mortgage questions

Anonymous — Thu, 12 Nov 2020 07:36:59 GMT

Thank you for asking this question. I was wondering this also. I've been looking at new builds in my area. The one I really like won't be available till July. I don't see the point of waiting that long. I've been looking at builders that offer closing clost.

Re: New Construction mortgage questions

oreopanda — Thu, 12 Nov 2020 14:09:52 GMT

Quick info on using a realtor and new construction. . . Do it if you can. The commission is paid by the seller and the realtor is there to help you.

we are dealing with a "quick switch" on an upgrade we paid for in smart features. We were told we would have a LIFTMASTER Linq Q belt driven garage door openers with the smart home upgrade and they installed chain driven genie garage door openers. We also found out our neighbor next door didn't pay for the upgrade but they got the LIFTMASTER Linq q but it is chain driven. Our realtor is working with them to find out the difference between the upgrade and standard.

he was also there when the builder changed our secondary bath countertops and told us we no longer had a choice. Our realtor worked with the builder and we all agreed on granite for the countertops and came out to less than $500 for those 4 bathrooms to be upgraded to granite.

the realtor fights the battles for you so you can have as smooth of a build as possible.

Best investment ever to have the realtor working with us instead of against us if we just went with the builders contact. Keep in mind - the builder would keep a 6% commission instead of splitting and doing the 3% between realtors. I'm already paying the builder, why do I want them to make more money off of me and not have someone help Me with these issues??

Re: New Construction mortgage questions

Anonymous — Thu, 12 Nov 2020 16:03:33 GMT

How long did y'all have to wait to get the house after pre qualification? The builder wouldn't say how long the priority list is.

Re: New Construction mortgage questions

brk1971 — Thu, 12 Nov 2020 16:06:27 GMT

In my case, they started construction (earth work) two days after the agreement was signed and deposit posted...

There's lots of builders with lots of developments... I've not heard of a wait list here at all... so this may be a very regional thing.

Re: New Construction mortgage questions

Anonymous — Thu, 12 Nov 2020 17:13:52 GMT

Yea. This is in chino, ca

Re: New Construction mortgage questions

Lynnow — Mon, 16 Nov 2020 02:48:06 GMT

I could def see these scenarios happen (that's what I'm afraid of) so we prob will stick to keeping our realtor. Thanks so muc!!

Re: New Construction mortgage questions

Lynnow — Mon, 16 Nov 2020 02:51:27 GMT

Haha we are also looking in chino/eastvale area! Right now we are siding with eastvale bc the mello roos are a little less (for now) and there doesn't appear to be as much competition (for now). There's competition but not like chino preserve area. I do love that area in chino though!! I'd live there in a heart beat if I could find something I liked without being outbid lol

Re: New Construction mortgage questions

Anonymous — Mon, 16 Nov 2020 18:34:24 GMT

I'm scheduled to close Friday on our new Pulte home. A realtor wont help you when building with a production builder. And almost all will give you the 3% off if you don't have one. Also remember production builders make huge huge profits off of the upgrades so while they wont budge on base price they will usually work with you on options.

I received:

3% closing cost credit in lieu of using a realtor ($16k)

$2000 off for Veteren discount

$47,500 off options

Final sales price $616,000