Selling Current Home and Building a New home

[JustJen]

We have started looking at new build homes in our area. We're not for sure ready to pull the trigger yet, but wanted to figure out exactly how the process would be. We know we want to use the equity in our current home towards a downpayment for our future home. If building takes 8 months - given how the market is in our area and how the homes in our neighborhood have flown off the market very quickly after just being put on it, we won't need 8 months to sell (will obviously get recommendations from our realtor once we are serious about moving forward!). We'd obviously want to stay in our current home as long as possible to not have to worry about securing another place to stay long term.

I'm assuming building is just like buying an existing home - you have to have a pre-approval in order to go under contract. Correct?

If that's the case, I don't think we'd be able to get pre-approved for a loan on the new build while still holding the debt of our current home. The debt-to-income ratio would be way too high. How does all this work? Will lenders grant pre-approval based off the contingency that you'll no longer have the loan from your current home?

Or do builders let you go under contract with earnest money only and you take care of loan stuff closer to when the home will be completed?

I'm sure there must be a way to do this, but our current home is our first so we've never had to worry about an existing home before moving forward with a new one!

Any insight is appreciated!

[Anonymous]

With new builds flying of the shelf most new builders would not allow contingency for old home to sell. You risk losing your deposit if you cant close on time. Sign the new build contact, put your old home on the market if you think it would sell quickly timing about a month in-between the 2 closings. You should plan for short term rental

[JustJen]

I didn't mean a contingency from the builder - I misspoke. I understand that you run the risk of losing your earnest money if you don't close on time.

I guess my question is - in order to go under contract with a builder, does it require loan pre-approval and earnest money? Or just earnest money?

If the builder requires a loan pre-approval, how would you obtain that from a lender while you still hold the debt from your existing loan? My debt to income ratio would be too high if they factored in existing loan AND prospective new home loan. Will they run numbers on the assumption that you would no longer have your existing loan, in order to determine your pre-approval?

[MauiMan85297]

The lender would do your approval based on you having sold the home before closing on the new home, these are called "conditions".  Like previous poster said, a builder will not accept contingencies for selling your home but will be able to get pre-approval for the new build + putting down your earnest money.

[JustJen]

Perfect. Thanks!

[Anonymous]

Hi there! Husband and I are in the process of purchasing a new construction home. I hope our process can help answer some of your questions.

08/27/2018 - We found, selected our community, lot and floor plan.

09/01/2018 - Reached out to a broker, discussed our financial situation verbally. Broker recommended programs.

09/04/2018 - We submitted bank statements, tax forms, credit application.

09/07/2018 - Preapproved for bank statement only program (since we're self-employed) 

09/15/2018 - Submitted pre-approval letter to builder. (Homes by Westbay, Tampa FL)

09/16/2018 - Signed purchased agreement and wired earnest money to builder.

09/17/ 2018 - Recieved approved executed purchase agreement from Builder and submitted to broker.

09/21/2018 - Builder submitted permit requests from city.

Since then, we've been working with builder on scheduling important appointments for us to choose the design while our broker is working behind the scenes. We have 45 days from the signed purchase agreement to get our loan approval (with contingencies included of course) Not quite sure what exactly our broker is doing because he hasn't kept us in the loop since a week in a half ago. But it's been a pretty exciting process (yet nerve-wrecking) so far.

Once we receive the loan approval, and select our interior finishings (in 2 months) our house is anticipated to be complete in about 6 months, which we will begin closing. They will pull our credit reports again, and we will be providing the remaining of our earnest money (we're doing 20% to avoid PMI, 10% to begin build, and 10% at closing).

Hope this helps! 

[Anonymous]

We were approved for BOTH loans (existing and the new house) because we aimed pretty low on the price of the new house, vs. what would have maxed us out.  Wound up selling our old house QUICKLY and landed in a condo my parents own but don't occupy most of the year while the new house dragged on 60 days past the date we were initially looking at.  The whole thing was a little nerve-wracking but the end result was excellent.

Main point is, don't think for one minute that the finish date for the new house is firm.  In our case, the weather was goofy and added some delays, AND I think our builder was just a little slower than they needed to be.

[Anonymous]

We are in this boat right now. Depending on the builder they may or may not start the construction on the new property with the contingency of selling of your current property. You will need a loan preapproval prior to signing the contract or within a very short timeframe after if they have a preferred lender. Unfortunately, our builder decided 2 days prior to construction start that they wouldn't begin any new homes with a contingency in the contract. So, they have our earnest deposit while we wait for an offer on our empty current home and continue to live in a small temporary apartment. We're also crossing our fingers that they don't try to sell the lot to another buyer and keep our money if we can't sell soon because that would totally mess up our chances of having money to buy another home any time soon.