My wife and I are planning on buying a preconstruction home (to live in) from one of reputable builders in Austin TX. We learn it takes some 9 months to one year from initial consultation with the builders to the finishing of the home. We both work with decent salaries and great credit histories. Here are my questions :banghead
(1) after the initial credits check, jobs verification, bank accounts verification, when will they determine the motgage APR? Is it when we get approved for the loan or when the house is completed? And if the APR is so high can we get out of the contract?
(2) will they do credits check, jobs verification, bank accounts verification again while the house is being built or when it is completed? What happens if me or my spouse change or lose job (God forbid) before we close on the house?
(3) does it make sense to save aggressively or pay down debts aggressively before closing on the house?
(4) is it even a good idea to buy a preconstruction home since all you see is on paper?
To answer your questions.
Your mortgage APR is determined once you lock in your loan. It typically does not cost you anything to lock in your loan for a lock term of less than 30 days. However there typically is a fee to lock in for more than 30 days. Some lenders have a program where you can lock for 180 days and you pay a point upfront and that money gets credited back to you as long as you stay with the same lender. Most of the time on pre-construction you will have to put down a deposit to get the home started. If you back out of the contract once the home is finished all you lose is the deposit.
Most of the time you can get approved in advance for the home, and then once it gets time to close (when the home is completed) they will just do updated verifications.
I would just make sure that your loan is approved before you put down the deposit. This is called a buyer ready approval. As long as you can be approved prior to the deposit then I would not worry about paying down debt. I would suggest not acquiring any new debt during the construction period.
Buying a pre-construction home is a personal choice. the nice thing about it is that you get to work with a designer and make all of the choices on the interior and exterior of the home. My wife and i bought a pre-construction home is 2006 and I believe it was the best decision for us. Just make sure you are dealing with a reputable builder and you will be fine.
Hope this helps.
Thanks Christopher, your answers really help us, we are just trying to be careful because the builders may not tell us everything and I hate to get stuck.
My wife and I bought a pre construction condo last winter (2007). We got pre-approved for our loan and then put down a deposit (5 grand, with 10 more grand due in 4 weeks). Our condo was built on time and we were set to close in mid October (9 months later), but 5 days before closing our mortgage broker F’d us and would no longer lend us the money! 9 months go by and everything is good to go, and 5 days before closing they pull out!?!?! They said the property would not appraise for what we agreed to purchase it at back in February. We paid 480k and they appraised it at 440k.
Now I told you that in order to tell you this, be careful of what the builder’s purchase contract says. At that point we were going to back out of our contract because we could not get financing (and more to the point who wants to lose 40k in equity instantly!). Our contract however stated that if we couldn’t get financing, then our builder could acquire financing for us, through Wells Fargo. Which of course they did because Wells Fargo appraised our condo at 480k! Shocking I know.
Anyhow, long story short, read your contract carefully!
In my small city, reputation is very important to local builders. I would suggest finding a small local builder who cares about reputation. They are much more likely to care about not screwing you.
My two cents,
I am sorry to read about your ordeal Scostell. We are buying from a builder here in Austin, TX. The contact is about 4 pages but between disclaimers and clauses, there are 20 pages. They said it will take between 6 and 12 months to finish. I know that anything can happen within the period, and they got the behind covered in case of anything.
I am just trying to be careful.
This is a scary market to buy new construction in. With property values falling you may end up buying a home that is not worth what your paying for it, like the people with the condo. Be cautious and have your agent include a price valuation clause to protect yourself from this.
I appreciate your contributions guys, if buying a proconstruction home seems fishy or troublesome, we will look for a short sale or foreclosure deals.