The Blueprint for a Successful
New Construction Purchase
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Housing shortages ... the pandemic ... shifting interest rates, and more. Each has contributed to the current housing market being like no other in the past.
The housing shortage and rising rates have affected both potential and successful buyers alike. First-time homebuyers have been hit especially hard.
There is good news to report, however. Homebuilders have taken note of the shortage and the need for more housing.
As of this writing, my research shows there are currently over 728 new construction homes available for sale in the Chicago southland's Will County alone. And a great many of those homes are being built with first-time buyers (or those downsizing), in mind.
Buyers have taken note of this surge in new construction. As a result, I'm receiving a dramatically higher number of calls and questions regarding new construction financing.
Those calls include the questions:
- How do you buy a new construction home?
- How is it different from buying an existing home?
- How and when do I get my financing for a new construction home?
- What's the time period typically needed from contract to closing day?
- Can I lock in an interest rate for my purchase?
- More ...
Now, while existing home and new construction financing is vastly different in most ways, there is one important similarity between the two. That is regarding the need for buyers to speak with a lender prior to starting a search and viewing of homes.
When that very important pre-emptive step is taken, a buyer can be pre-approved. They can move forward fully aware and educated about their financing capabilities and options.
Simply, they know what they can (and can't) afford when starting their home search. This one action is extremely beneficial in a myriad of ways.
The differences that exist between the two forms of home purchase reveal themselves immediately. The first difference includes the viewing and touring of homes for sale.
A prospective new construction home build, at least in the Chicagoland area, is conducted from Model Homes and/or Sales Offices typically found within the subdivision/location under consideration. At new construction visits and consultations, homebuyers may or may not see an actual physical home. The home "viewing" may be in the form of house plans and layouts.
Buyers are often offered options to semi-customize their new home by the builder's sales team. Buyers choose customization features from a list or menu of items available. Possible upgrades and modifications are often discussed at this point too.
As a new construction loan officer: I suggest that any buyer considering the purchase of a new construction home work with a buyer's agent ... experienced in new construction purchases.
Have your buyer's agent at your side during all viewings, tours, and consultations with the builder's sales team. They'll represent your interests and be your advocate and advisor during your entire transaction.
Upgrades and modifications shown to you by the builder's sales team can be, to say the least, very tempting. But remember to pay attention to your bottom line (the pre-approval figure provided by your lender), as these options and customizations can run up costs on a home quickly.
(Again, this is why I so strongly urge buyers to be pre-approved for a loan prior to visiting a home or builder. With a pre-approval, buyers know what they can and can't afford (be approved for).
New construction buyers should also be aware that:
- Most home builders will require a small deposit to hold a lot until a contract can be agreed upon
- It is wise to negotiate a price first. Discussions regarding home building options, credits, and financing can take place afterwards. (Builders often try to intertwine these discussions. )
- Homebuilders typically require a deposit or payment to be paid prior to the start of construction (typically 10% of the final negotiated Purchase Price)
- Fully-completed new construction homes are sometimes available within subdivisions as well. Minor customizations are sometimes still possible and negotiable when purchasing these completed homes
- Buyers should demand a full accounting from the builder on future tax bills on the fully-improved home, (not just taxes upon the lot)
- The timeline/completion date for their home. Traditional timelines for new construction have run 90 to 180 days, but with supply-chain issues/pandemic delays, construction times are now sometimes running longer
- Interest Rate Locks: Typically, interest rate locks run for 60 days, but some lenders offer 90-day locks. An even smaller number of Lenders will offer what is called an "Extended Rate Lock" to cover a buyer/borrower from start to finish/closing on a new home
- How will you fund a deposit/downpayment needed by a home builder?
- Does the home builder consider contingency deals?
- If your home sells prior to your new construction completion, where will you live or stay until the new home is completed/Closing Day?
There's a lot to know and consider before you make a final decision regarding a new construction home purchase.
Do some homework first. Take the time to educate yourself. Be sure to ask questions of your builder (and loan officer) before you make your final decisions and contract for a home purchase.
Want to know more? Contact me to get started …
* Gene Mundt, Loan Officer - American Portfolio Mortgage Corp, is the preferred lender for GDP Homes. Please visit the GDP Homes website for further information on those homes offered by GDP ... or reach out to Gene Mundt regarding the special financing available for GDP Home purchases.
Looking for mortgage financing answers, options, solutions, and experienced assistance?
Contact me! I'll put my 40 years of Mortgage experience and expertise hard to work on your behalf.
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