New construction loans, mortgages, building and selling, etc

[ktgrok]

Ok, obviously I'll talk to professionals about this, and Im researching, but I trust the hive!

If one owns a current home, and wants to build a new home, are the options only to qualify for two mortages, or sell and rent before starting a new home, or??

I'm very confused by bridge loans/construction loans, construction to permanent loans, one closing loans, etc. 

I doubt we can qualify for a mortgage before selling our current home, and we don't have much of a downpayment without selling current home, that's where the downpayment will come from. So...do people in that situation just have to rent for a while?

We are likely looking at "production builders" like Maronda, etc, most likely in a builder community. Almost certainly on a builder owned lot. 

Edited March 10, 2021 by ktgrok

[TheReader]

hmm. 

I think if you are going with a builder in an established neighborhood, it's not a construction loan (ours was not, anyway), and is more like just a regular "buying a house" loan. 

I think you can get preapproved based on "when the house sells" kind of thing, not 100% sure, but for sure when you offer/enter contract on the build house you can do so pending sale of your current house -- so, first stop is mortgage shopping/get pre-approved. 

Then, closing on the build house is not until the house is ready, so you would time the sale (hopefully) of your house to be close to the completion date of the new house, so that you only are carrying one mortgage at a time.....so, when you talk to a realtor about selling, you find out roughly how long that's taking, allow a bit of wiggle room, and then as you get offers, you make sure the closing date is set to coincide with the finish date of the new home &/or to allow a clause to rent-back the home post-closing if needed until your new house is ready.

talk to the builder in the new neighborhood for how long houses are taking to sell, how flexible closing dates are, how accurate their prediction of closing dates is, and give that info to your realtor when you list the house for sale. He or she will likely have worked with the builder before and can sort out the best timeline, as well. 

So.....that doesn't answer your exact questions, but.......maybe helps some? 

 

[Sherry in OH]

This was many years ago, so things may have changed, but here is our experience:

When we bought in a builder-owned neighborhood, we made a non-refundable downpayment of a few thousand dollars to reserve the lot.  There were two contract options, one was contingent on sale of current home, the other was firm (used by renters and those who could carry two mortgages if necessary).  I do not remember whether there was a price difference but there were strings in the contingent  on sale of current home option - we would have had to put it on the market by a certain point in construction, agree to a minimum price point set by the developer's appraiser (lower the price to that point if the house didn't sell at a higher point), and other concessions.   We had enough cash for at least 20% downpayment and a low enough mortgage on our first house that we felt we could carry two mortgages for a few months so we opted for the no-contingency option.  We were required to use the developer's mortgage company even though they did not have the best rates.  (We refinanced a few years later.)

Once we signed the contract, the builder started on the house.  We contacted a real estate agent who walked through our old house to give us suggestions (some repainting and repair but mostly rent a storage facility for non-essential items).  She recommended putting the house on the market about two months prior to anticipated construction completion anticipating that it might take 2-3 months to sell.  We did so and the house sold within 2 days.   Meanwhile there were delays in construction pushing completion back more than a month.  We asked the buyers to rent the house to us until we could move in, they declined but agreed to postpone closing. 

We closed on both houses the same day.   We took the check from the closing on our old house to the closing on our new house.   We signed the check over to the mortgage company.  The check was for more than the mortgage company would accept as a downpayment so they cut us a check for the remainder.  I do not remember the % allowed, just that we could not apply the entire check to the downpayment but could make a large first monthly installment if we wished.

There was no construction loan involved because the builder/developer carried the costs until closing.  I think it is different if you are building in an area where you buy the lot then find your own builder.   

 

 

 

[Sneezyone]

Following. Specifically for info on self-owned lots and design-build construction. We’re FINALLY planning for DHs retirement.

[Carrie12345]

Ours will be a construction to permanent loan. The payments between opening  the loan and moving in are interest only, based on the amount drawn at the time, so it will increase each time the company takes money. It won’t be a full mortgage payment until it’s all done.

Our loan IS (well, is going to be) based on us selling our house. I assume they’ll be checking to make sure our finances can handle a small overlap. And we will be listening before we actually move, so hopefully we’ll have an offer. If things don’t change much from today, that won’t be an issue!

[Sneezyone]

28 minutes ago, Carrie12345 said:

Ours will be a construction to permanent loan. The payments between opening  the loan and moving in are interest only, based on the amount drawn at the time, so it will increase each time the company takes money. It won’t be a full mortgage payment until it’s all done.

Our loan IS (well, is going to be) based on us selling our house. I assume they’ll be checking to make sure our finances can handle a small overlap. And we will be listening before we actually move, so hopefully we’ll have an offer. If things don’t change much from today, that won’t be an issue!

Did you buy the lot first or is it a builder owned parcel? I’m trying to sell DH on the idea of selling our rental to pay for a lot.

[Carrie12345]

1 hour ago, Sneezyone said:

Did you buy the lot first or is it a builder owned parcel? I’m trying to sell DH on the idea of selling our rental to pay for a lot.

We are still in the process of finding/picking a lot, but it will be part of our whole package. 
P.S. It isn’t going well. 😡I finally decided to pull the trigger on building, and now we’re struggling to find a lot suitable for a basement.

Edited March 11, 2021 by Carrie12345

[Sneezyone]

43 minutes ago, Carrie12345 said:

We are still in the process of finding/picking a lot, but it will be part of our whole package. 
P.S. It isn’t going well. 😡I finally decided to pull the trigger on building, and now we’re struggling to find a lot suitable for a basement.

I’m hoping we’ll have better luck. No basement. I just want a ~1 acre lakefront/waterfront property to serve as a family vacation spot. I envision an A frame or ranch house.

[ktgrok]

2 hours ago, Carrie12345 said:

Ours will be a construction to permanent loan. The payments between opening  the loan and moving in are interest only, based on the amount drawn at the time, so it will increase each time the company takes money. It won’t be a full mortgage payment until it’s all done.

Our loan IS (well, is going to be) based on us selling our house. I assume they’ll be checking to make sure our finances can handle a small overlap. And we will be listening before we actually move, so hopefully we’ll have an offer. If things don’t change much from today, that won’t be an issue!

What about a down payment, for the construction loan?

 

[ktgrok]

Ok...so now my sticking point /confusion is...downpayment. Our downpayment will come from the sale of this house. When buying a typical existing structure you pay a few thousand maybe in earnest money, and then don't need the downpayment until closing, at which point you ideally sold the old house. 

When buying in a builder community is that the same? Or do they want a decent downpayment when you sign the contract? Or I guess that varies? If it is a few thousand, that is fine. Market should be such that selling isn't an issue, there are ZERO homes for sale currently in the neighborhood I'm in, things are going fast. I guess I don't know that that would continue down the line, but I don't see selling being a huge problem. And if we can do a contract on a new house contingent on selling, and just put down a few thousand, that would be ideal. 

Otherwise, I think we are looking at trying to rend, and finding a less than a year rental that we can all fit in that will take 5 pets.....yeah. If it was for say a month, cause construction was delayed, we could probably crash at my parents for that long, or pay for a month to month place and put our stuff in storage. But month to month rentals are too expensive to do for say, 6-10 months or longer while building. And the regular places seem to want a year lease. And moving twice is doable, but ugh. 

I guess I need to contact builders sooner rather than later to ask about all this, huh? I did contact a realtor today, we are going to schedule to have her come out and tell us what we should/shouldn't bother fixing, give us an idea of what we can expect to sell for, etc. Should we involve her in talks with the builders about this stuff - regarding financing options, do they just handle the other aspects, or don't bother since it is a production builder and everything is set in stone anyway?

Edited March 11, 2021 by ktgrok

[Carrie12345]

28 minutes ago, ktgrok said:

Ok...so now my sticking point /confusion is...downpayment. Our downpayment will come from the sale of this house. When buying a typical existing structure you pay a few thousand maybe in earnest money, and then don't need the downpayment until closing, at which point you ideally sold the old house. 

When buying in a builder community is that the same? Or do they want a decent downpayment when you sign the contract? Or I guess that varies? If it is a few thousand, that is fine. Market should be such that selling isn't an issue, there are ZERO homes for sale currently in the neighborhood I'm in, things are going fast. I guess I don't know that that would continue down the line, but I don't see selling being a huge problem. And if we can do a contract on a new house contingent on selling, and just put down a few thousand, that would be ideal. 

Otherwise, I think we are looking at trying to rend, and finding a less than a year rental that we can all fit in that will take 5 pets.....yeah. If it was for say a month, cause construction was delayed, we could probably crash at my parents for that long, or pay for a month to month place and put our stuff in storage. But month to month rentals are too expensive to do for say, 6-10 months or longer while building. And the regular places seem to want a year lease. And moving twice is doable, but ugh. 

I guess I need to contact builders sooner rather than later to ask about all this, huh? I did contact a realtor today, we are going to schedule to have her come out and tell us what we should/shouldn't bother fixing, give us an idea of what we can expect to sell for, etc. Should we involve her in talks with the builders about this stuff - regarding financing options, do they just handle the other aspects, or don't bother since it is a production builder and everything is set in stone anyway?

Yeah, you’re going to have to speak directly with builders, because I’m sure it varies.  Our builder does have an option for them to pretty much take on all the expense until closing (rather than bank draws), but they require a 10% deposit. I didn’t want to directly give them that much money without all of the protections of the bank. The builder would still own the lot and building until a loan went into place.
 

We’re just doing a small cash down payment like a regular loan and then applying sale profits to the principle later.

Edited March 11, 2021 by Carrie12345

[Lecka]

I have heard of people signing a contract with a move-in date 2-3 months down the road, so they can have the house be sold but still live in it, and there is a payment agreed on that is paid to the new owners (like paying rent).

I have heard of this when both sides want things done but also both want to move kids in the summer. 
 

I have also known people who wanted this, couldn’t get it, and put most of their things in storage and lived somewhere tiny for 2 months. 

[WoolC]

We’re going through this process now.  We went with a local builder who has several communities under construction in our area. To secure our lot and floor plan we had to pay 5% of the purchase price as well as 50% down on the upgrades we chose to add.  Our close date on the new construction isn’t until July at the earliest.  Expect a lot of delays due to Covid.  We finally got our footing dug out today after 2 months of waiting!  

We decided to go ahead and sell our house and we’re renting an apartment with a 4 month lease and we’ll go month to month if necessary after that.  We chose this for a few reasons.  Our area is crazy competitive right now with very little inventory.  We were able to sell within 24 hours for 10k over our asking price with a cash offer.  This was with terrible carpets and significant repairs needed under the house (fully disclosed to buyer).  Even now, more inventory is coming onto the market as people that have been on the fence about selling are beginning to list in our area.  We wanted to beat the market downturn that may occur later this spring/early summer when we were ready to close on the new house.  We also thought if we had a longer term between homes we could get better deals on an apartment.  We didn’t want to be stuck with nowhere to go for just one month or two.  While we looked into bridge loans, back to back closings, etc it just seemed stressful and I didn’t want anything that could possibly cause our deal to go south.  In our area, getting a contract on a new construction contingent upon the sale of your home just means you’re not on the hook for the mortgage when the closing date comes, but you still lose the new house and any money paid upfront.  Some builders in our area aren’t accepting contingent contracts at all as the market is so competitive now.

[Bootsie]

3 hours ago, ktgrok said:

Ok...so now my sticking point /confusion is...downpayment. Our downpayment will come from the sale of this house. When buying a typical existing structure you pay a few thousand maybe in earnest money, and then don't need the downpayment until closing, at which point you ideally sold the old house. 

When buying in a builder community is that the same? Or do they want a decent downpayment when you sign the contract? Or I guess that varies? If it is a few thousand, that is fine. Market should be such that selling isn't an issue, there are ZERO homes for sale currently in the neighborhood I'm in, things are going fast. I guess I don't know that that would continue down the line, but I don't see selling being a huge problem. And if we can do a contract on a new house contingent on selling, and just put down a few thousand, that would be ideal. 

Otherwise, I think we are looking at trying to rend, and finding a less than a year rental that we can all fit in that will take 5 pets.....yeah. If it was for say a month, cause construction was delayed, we could probably crash at my parents for that long, or pay for a month to month place and put our stuff in storage. But month to month rentals are too expensive to do for say, 6-10 months or longer while building. And the regular places seem to want a year lease. And moving twice is doable, but ugh. 

I guess I need to contact builders sooner rather than later to ask about all this, huh? I did contact a realtor today, we are going to schedule to have her come out and tell us what we should/shouldn't bother fixing, give us an idea of what we can expect to sell for, etc. Should we involve her in talks with the builders about this stuff - regarding financing options, do they just handle the other aspects, or don't bother since it is a production builder and everything is set in stone anyway?

IME, the builder community wants a small fee to hold the property for you.  Then they will only let you pick from their pre-arranged choices of tile, flooring, appliances, etc.  This is to protect them in case you decide to run or if you can't sell your house; they still own the house and can sell it to someone else.  So, even if you have your heart set on walls painted black with red-polka-dot trim, they will not allow for that choice because they don't want to be stuck with trying to sell that.  There will usually be something in the contract that if you have not sold your house by X date and you can't come up with the downpayment/qualify for the mortgage you are released from your contract on the new house.  This provides you some protection but it is also meant to protect the builder from sitting for several years before they can recoup their investment.  

They will probably want an appraisal on your existing home to see that you will indeed have money for a downpayment when the first house sells.  

[ktgrok]

7 minutes ago, Bootsie said:

IME, the builder community wants a small fee to hold the property for you.  Then they will only let you pick from their pre-arranged choices of tile, flooring, appliances, etc.  This is to protect them in case you decide to run or if you can't sell your house; they still own the house and can sell it to someone else.  So, even if you have your heart set on walls painted black with red-polka-dot trim, they will not allow for that choice because they don't want to be stuck with trying to sell that.  There will usually be something in the contract that if you have not sold your house by X date and you can't come up with the downpayment/qualify for the mortgage you are released from your contract on the new house.  This provides you some protection but it is also meant to protect the builder from sitting for several years before they can recoup their investment.  

They will probably want an appraisal on your existing home to see that you will indeed have money for a downpayment when the first house sells.  

That all makes sense. 

[Alte Veste Academy]

20 hours ago, WoolC said:

We’re going through this process now.  We went with a local builder who has several communities under construction in our area. To secure our lot and floor plan we had to pay 5% of the purchase price as well as 50% down on the upgrades we chose to add.  

Oh my! Forgot about the upgrade cost. We paid earnest money, at which point we secured the lot and had to commit to the structural upgrades we wanted. The big cash out-of-pocket was a month or so later, when we visited the design center to make the design choices and had to write a check for 50% of the cost of all upgrades over (I think but can't precisely remember) 20% of the base price of the house.

Edited March 12, 2021 by Alte Veste Academy

[Lecka]

As far as moving twice — we have military moves and it is beneficial to have things packed and then stay in storage until the final destination.  So it is common to be in some kind of temporary housing with few belongings.  
 

So then it’s not really moving twice as far as — unpacking and repacking most belongings.
 

And then for big stuff — around military bases there are often short-term rentals that are furnished.

 

I don’t know what storage costs would be but I think it is cheaper to pay storage than to unpack and repack everything and move furniture and everything twice.  It also saves wear and tear on anything that has to be taken apart and re-assembled.  
 

And then it depends on if you can find something furnished, too.  
 

Separately, some places will not allow dogs.  Some places will — but it will probably rule out a lot of places, so if it’s possible for you to leave your dogs with someone it will make it a lot easier to find a temporary rental.  
 

I am just remembering I knew someone who had a house built, and they sold their house earlier than expected for a good price — when the real estate market was not so hot for sellers.  They lived in a duplex and her kids shared a room who had not before.  She said it worked out a lot better than she thought it would!  I know what duplexes they lived in (because they lived right by a city pool we went to) and it was a place that would allow dogs.  I am pretty sure her husband was living in an apartment in Wichita because he had already started his new job, so it was just her and two boys, and they were going to move into new construction and let the boys finish the school year.  

[ktgrok]

Yeah, in this case if we have to sell before starting the build process, we will be looking at 6-10 months or more renting, I'm assuming. No way we can leave our dogs somewhere that long - nor do we know anyone willing to take 210lbs of dog, lol. 

I don't mind having kids share, right now I have two kids in one room and DD3 in the play area on a day bed. But there is just only so much cramming you can do and still have room for DH to work from home and me to school the kids, etc. 

[ktgrok]

All that said, there is still a good chance selling and then renting is the best option. If we rent closer to my parents and the beach we'd be able to keep an eye on the building more easily. 

[Lecka]

Do you think your husband could rent any kind of office space, or rent 1 room somewhere quiet?  I wonder if that could open up options?  
 

I think if you realistically need a fenced yard for your dogs — that is good to know.  If you could get by with them having access to shared space where they had to be leashed — that is good to know.  If you could get by with a dog run or dog park that they had to be leashed to get to — a lot of temporary places may have that, that don’t have a fenced yard.  I think a lot of places that have a small playground also have a small fenced area for dogs.  
 

If you definitely realistically need a fenced yard — that is good to know.  

[ktgrok]

5 hours ago, Lecka said:

Do you think your husband could rent any kind of office space, or rent 1 room somewhere quiet?  I wonder if that could open up options?  
 

I think if you realistically need a fenced yard for your dogs — that is good to know.  If you could get by with them having access to shared space where they had to be leashed — that is good to know.  If you could get by with a dog run or dog park that they had to be leashed to get to — a lot of temporary places may have that, that don’t have a fenced yard.  I think a lot of places that have a small playground also have a small fenced area for dogs.  
 

If you definitely realistically need a fenced yard — that is good to know.  

I did think about him working at my parents or sister's house even, but the issue is he would then not have all his "stuff" at home for when he needs to work in the evenings or need to replicate a ton of stuff. A LOT of stuff, lol. Before, when he worked in an office, he had a great set up there with multiple monitors, docking stations, etc, everything he needed. And then at home he had a set up with a few monitors, docking station, plus recording stuff for working in the evenings, on weekends, etc. He often works until 11pm or midnight. Now, he has that stuff at home, which he uses at any time of day or night. If he moved all his work stuff to a rented office he'd have nothing at home to use, without buying double of everything. Before, his job supplied all the equipment that was at the office, that won't happen with an off site rented space. 

And we can survive short term without a yard, but longer than a month or so would be really frustrating. Taking 3 large dogs out to potty throughout the day on a leash is a lot harder than letting them out to run.  Especially since if I walk two on a leash together it seems the hound ends up peeing on the other dog's head, lol. Plus driving to a dog park each day, etc. 

Edited March 12, 2021 by ktgrok

[Lecka]

We just spent about 6 weeks staying with my parents with one dog.  Everything went about as smoothly as it could — my husband wouldn’t look for a new house here until we closed on our old house because he was so paranoid that something would fall through with our old house.  But it did work out.  
 

But 6 weeks is also a really long time, we only had what could fit in one car and one truck for that time.  (Edit — for personal belongings, I am not counting kitchen items or cleaning items or anything like that, we didn’t need anything like that staying with my parents.)

I think if you might have a longer time renting — you need something that will work!

 

We were looking at one new construction house, but part of it was we didn’t want to wait so long for it to be ready.  It was also turning out to be a little expensive for us, and there were only two lots where we could have the floor plan we liked, and both of them would have required a wrought iron fence for the backyard — which my husband didn’t care for.  (Really — to have what we would want it was too expensive.)
 

Anyway — it sounds like you will need somewhere larger if you do end up renting.

For us — 6 weeks was a LONG time to live somewhere that was acceptable but also — not actually a good fit for us. 
 

We were also just ready to get settled — I think this is better for you with staying in the same metro area. 
 

Edit:  we are in a different market, though.  I think it makes a big difference.  

Edited March 12, 2021 by Lecka

[Carrie12345]

@ktgrok I recommend talking to someone as soon as possible. In the past <2 months, the base price on my model has gone up twice. Before the first bump, I had only talked to the guy on the phone. Before the second bump this week, I actually went in and did a 4 hour meeting, so he’s making sure they’re freezing the previous price. I hadn’t signed anything yet, but was still considered a serious buyer with most of my main details hammered out.

With the two hikes combined, the base price went up more than $40k, and I have no way of knowing about increases on upgrades.

[vonfirmath]

On 3/11/2021 at 6:03 PM, Lecka said:

I have heard of people signing a contract with a move-in date 2-3 months down the road, so they can have the house be sold but still live in it, and there is a payment agreed on that is paid to the new owners (like paying rent).

I have heard of this when both sides want things done but also both want to move kids in the summer. 
 

I have also known people who wanted this, couldn’t get it, and put most of their things in storage and lived somewhere tiny for 2 months. 

The moment you sign a contract like this you become a landlord. So when we were buying I knew we would not have been amendable -- would rather move the closing date if we had to.  Or, since our house had renters in it when we bought, we wrote into the contract that the renters had to be out before we would take possession.

OTOH in today's market we may not have had leeway to craft that contract. Stuff is selling now for 100K OVER what it goes on the market for locally

Edited June 19, 2021 by vonfirmath

[Serenade]

One thing to keep in mind with a construction loan is that the bank will only pay out the money as certain construction milestones are met.  The house we built was cost-plus (which I don't recommend to anyone!), and there were a few times when we needed the bank to release money but they wouldn't because certain milestones weren't met yet.  Then we had to find a way to pay the builder or construction on the house construction wouldn't continue.  We had a few tight moments due to this problem.  But then, our builder wasn't the most ethical person around, either.  

[Carrie12345]

1 hour ago, Serenade said:

One thing to keep in mind with a construction loan is that the bank will only pay out the money as certain construction milestones are met.  The house we built was cost-plus (which I don't recommend to anyone!), and there were a few times when we needed the bank to release money but they wouldn't because certain milestones weren't met yet.  Then we had to find a way to pay the builder or construction on the house construction wouldn't continue.  We had a few tight moments due to this problem.  But then, our builder wasn't the most ethical person around, either.  

Ouch!
For our loan to be finalized, our builder had to sign off on the bank’s terms. 
How would that even work? Did you just trust the builder to reimburse you?

[Serenade]

1 hour ago, Carrie12345 said:

Ouch!
For our loan to be finalized, our builder had to sign off on the bank’s terms. 
How would that even work? Did you just trust the builder to reimburse you?

Since we did cost-plus, we were responsible for any cost over-runs, plus the builder's percent of those overruns. Every cost increase for us was, in effect, a profit increase for the builder.  So there was no incentive to control costs, and our builder used the cost-plus terms to take advantage of us.  We thought we could trust him because he was the president of a home-builder's association in a large city, but it turns out that he was not cost-conscious at all because he knew we had to pay -- cost plus.  So often things cost more than were in the budget, but that didn't give us more money from the loan.  The loan amount was fixed, but unfortunately the building costs weren't fixed due to the cost-plus terms.  That is why I wouldn't recommend cost-plus to anyone -- there is no incentive to control costs.