Questions about new construction in planned community

[brk1971]

I've got several questions rattling around in my brain.

On background: I'm looking at a lot in a planned subdivision that will be 'released' in the next two to three months when that phase of the community is made available. I like this particular lot because it's at the end of a cul-de-sak with only one neighbor and has a back yard that extends quite far (total is just over a half acre, and most lots down here are pretty small - 0.1 to 0.2 acres). The developer/builder (not sure which to call them) told me I won't need a construction loan, but rather a simple earnest deposit (which she said was either $500-1000 with a pre-approval or 5% of the purchase price without preapproval) that will initiate the build. She also said at present, from 'go signature' to close, right now they're averaging 5.5 to 6.5 months.

Questions:

1. Am I correct in assuming there is no point in doing a pre-qual now? (at best I'm 7.5 months from move in)

2. Is it really possible for a pre-approval to last for 5.5 to 6.5 months? At face value, it seems like I'll go through full underwriting twice. (#PITA)

3. I will most likely put down 5% if I go through Navy, perhaps 10% if through another lender. Navy has no {separate} PMI, and the PMI cost through their lender is advertised as ranging between "0.2% and 1.5%." Does PMI rate have a direct or inverse relationship to risk profile? (a.k.a., does the lender charge higher PMI on lower risk profiles to make up some of the lower interest rate, etc.)

4. This builder/developer is one where you get significant added value by borrowing through their lender. If the value proposition favors inclusives over interest rate, I'll buy using their lending arm. If that happens, is there anything strategy wise (that I may be missing) that prevents me from doing that and simply refinancing through Navy a short time after close? (assuming a rate difference made the refi worth it)

Not sure if my qualifications matter in answering those questions, but at present, it's fairly safe to assume I'll qualify at the best tier from a score, income, and DTI standpoint. As for the loan value, my desired lot is in the very last phase of the entire planned community so I think it's also safe to assume appraisal / loan value will be fine also. I am not eligible for a VA loan.

I realize the deal will not be done for a while, and some or all of this may become self-apparent. However, my brain is one of those that likes to understand the relationship between the various factors...

[ldkcivilservant]

1. If by 'no point' you mean 'don't want a couple of hard pulls' then yes I suppose you're right.

2. Pre-approval does not require full underwriting. It is based on a cursory examination of your credit, debts and income.

3. PMI is of course linked to risk. That's it's whole purpose. You the consumer are paying costs of insurance against you defaulting in order to protect the lender.

4. As long as there are no pre-payment penalties associated with loan, then no there really is nothing to stop you doing that.I don't see why you would want to pay a whole second set of closing costs to refi so soon after buying the house though. It would have to be a VERY sizable saving for me to even consider doing that. I doubt they are offering anything close to that amount in conpensation for using their lender. You are better off going with the better rate, regardless of the lender, but of course compare the 2 scenarios.

[brk1971]

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@ldkcivilservant wrote:

1. If by 'no point' you mean 'don't want a couple of hard pulls' then yes I suppose you're right.

Actually, your answer to #2 made this question moot, but I see your point.. 

2. Pre-approval does not require full underwriting. It is based on a cursory examination of your credit, debts and income.

This is great info, and new to me - I somehow had thought that was pre-qualifying and pre-approval was via underwriting. 

3. PMI is of course linked to risk. That's it's whole purpose. You the consumer are paying costs of insurance against you defaulting in order to protect the lender.

I understand that it's linked, just didn't know if it's a direct relationship (where qualifying for the best / advertised rate suggests the lowest PMI %). 

4. As long as there are no pre-payment penalties associated with loan, then no there really is nothing to stop you doing that.I don't see why you would want to pay a whole second set of closing costs to refi so soon after buying the house though. It would have to be a VERY sizable saving for me to even consider doing that. I doubt they are offering anything close to that amount in conpensation for using their lender. You are better off going with the better rate, regardless of the lender, but of course compare the 2 scenarios.

The offers in December will be different, but right now the offer is $12k in closing costs (whick would cover all such costs as well as one point). I'll definitely follow your suggestion to compare them when I get to that point though. I think I'd only do a quick turn like that if losing the PMI and Navy rate would pay for itself in a year-ish...  

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Thank you for the wisdom.

[ldkcivilservant]

Just to clarify (since I think you may have got the wrong end of the stick) pre-approval for a mortgage WILL require a credit pull, and supplying all documents that they require (bank statements, pay stubs etc) it just does not go through underwriting.