New Construction - how does it work?

[AshCas]

My husband and I planned on getting pre-approved this summer for our first home.  Recently, we thought about purchasing a new construction home, as a family friend is a builder - and is going to start work on a new neighborhood soon. We haven't seen anything currently on the market that really excites us, and the idea of being able to design our own house is great.

If we were interested in one of these homes, what's the first step in the process?  Do we get pre-approved - then just wait until the home is built, and then have to basially apply for the mortgage then?  I know the construction usually takes a few months, so I"m just curious exaclty when we get the financing taken care of.

Thanks!

[tooleman694]

Once you find the hood you like, you pick the model you want and the lot. Then you pick roughly what kind of options you want and the sales people will give you a price.

Then you either speak with their lender or your own lender and get pre-approval. You write a fat check to the builder for earnest and 6 months later you close on your home.

The real loan work happens during the last 2 months of the process. This is when you start running around like a headless chicken to get the deal closed.

[rbtextreme]

You can go ahead and get pre approved so you know how much you can actually afford.

Once you have your pre approval you can go look for houses to see what you like. If you find a house, you'll sign a contract with the builder and provide it to your LO who will then run everything through underwriting to get you a conditional loan approval. Usually a builder won't start building until you've provided them with a deposit & conditional loan approval.

Closing will occur once the house is completed.

If you back out of the deal you'll be subject to losing your deposit or having to wait until they sell the house to get it back.

[indecison]

The way it worked for us is we got a pre approval from the builders lender prior to the contract. We wanted to make sure we would have an approval before investing the money. Once that was done we picked the lot and the floor plan and worked up the contract which at that point we had to put in the earnest money which for us was $2500.

We also used a realtor program through our builder for the house we owned. They had a realtor come in to sell our house (contract in 12 days) and the 3% commision they would have got for listing goes to the down payment of our new home. That realtor then gets a percentage of the new home sale.

The next thing we had to do was pick our upgrades and we had to pay 1/3 of the upgrades at time of picking them.

We will start the full loan process mid month this month and hopefully close in September.

[tooleman694]

When I built my first home they made us do the 1/3 thing. But the house we are building now they didn't unless you do something weird with the house. Like pick some upgrade they don't offer or want to make big changes to the plans of the home.

There are people in the hood that paid thousands up front to get the plans redrawn to what they wanted. And others that wanted to upgrade things beyond their offerings. We just went with what they had lol.

[ChangiBear]

First I got a preapproval.  I picked my floor plan and the lot then had to put 5% down plus 20% of any structural changes.  For me, this was about $20,000.  Then I signed the purchase agreement and turned in my paperwork for underwritting.  Now I'm waiting for underwriting to be complete for my conditional approval.  Once I'm approved, they will begin construction.  In a few months I will go to the design center to pick my upgrades, at which time I will have to pay 20% of the upgrades.

[birjest]

Well, I must be the lucky one here.  We are having a new construction (which was the last home to be built in the sub-division) and we are only on the hook for the 3.5% for fha.  Oh yes, the wife added $3K for upgrades like front door upgrades and pendant lights..oh yea, extra padding throughout the house.  However, we are having our closing and pre-paids cover by the mortgage company and the builder ($11,200). 

[thankfulheart]

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@birjest wrote:

Well, I must be the lucky one here.  We are having a new construction (which was the last home to be built in the sub-division) and we are only on the hook for the 3.5% for fha.  Oh yes, the wife added $3K for upgrades like front door upgrades and pendant lights..oh yea, extra padding throughout the house.  However, we are having our closing and pre-paids cover by the mortgage company and the builder ($11,200). 

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I'm like you, but had substantial upgrades ($10K+) and I'm still only on the hook for the FHA 3.5%.  Closing/prepaids paid by the builder, too.

I chose my lot and put down $500. Went back later to choose the model and upgrades and put down another $1500. My contract included language about having 90 days to begin the mortgage app process since I was still rebuilding credit at that point.  I also agreed to 2 more payments over that time to bring me to the 3.5%.  The lender started working with me in early June and we are still in the middle of it all, but she sent a "pre-qual now" to the builder to get me on the schedule.  The builder has to secure financing for the construction phase since I'm not doing a CP loan.  The way I understand it from here, the UW will give a conditional approval and that's when the building will begin.  Final approval will come toward the end of the construction process along with a clear to close.

[Anonymous]

We went through WF first for Pre-Approval, then after seeing nothing we liked out there, decided to build. Subdivision is/was about full, and WF was one of the builder's approved lenders. After sitting down and deciding on the basic floorplan/carpet/cabinets/floors etc, we added on ~$5-7k of changes (friese carpet, rubbed oil bronze fixtures, etc). At that point, the builder only wanted $1,000 earnest money, and that was all we were on the hook for until building was finished. Builder paid all closing costs, WF actually paid our upfront MIP due to an error on their behalf, so in the end, all we paid was the 3.5% FHA down payment.

It took almost 5 months to build, but we are currently in the house and loving it.