Buying A Home
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Tell me about building a new home
We've started looking a few new housing developments. Does anyone have experience with this? How much do you usually have to put down as a deposit? If you can't sell your house by the time the house is built, can you get out of it? If so, would you just lose the deposit? Is it better to be one of the first houses in the neighborhood or one of the last? In this market, do they typically depreciate or stay the same? Any other tips? Thanks!
Re: Tell me about building a new home
I'll answer as best as I can - We are trying to buy a new build now and in the process of selling our home. Our deposit was 10,000. It is fully refundable if we can't sell our current home or can't get financing. It's just to hold the lot. We can get out for sure if we don't sell - we have a financing contingency and a home sale contingency. While we won't lose the deposit, we will lose any money we put down for upgrades (if we back out after those cut off dates have passed. Our upgrade depost is 20% of the upgrade cost) Our builder gave us a list of those deadlines so we have to decide if we are willing to take the risk or not. I would assume it would be better to be one of the last in the neighborhood since you know the project will be completed and you won't have to deal with construction for potentially years. We are buying one of the early stages (not the first, but fairly early still). This works for us because they are selling the lower priced homes first and working their way up so that people spending twice as much on a home don't deal with all the construction. This is the only way we can afford to be in the neighborhood. We also are happy with our lot location now.
As far as depreciating, I think it really depends on the area. In some areas, new builds are a dime a dozen and don't hold their value as well as older homes since there will always be something 'newer' on the market. If your location is good and you aren't surrounded by developments, I think it can be great. We like new and are excited to customize our home. It's also in an area where there aren't other new builds (fully developed, this is put on land that used to be owned by the military and was sold so it's the only new community going up). However, it will be difficult to sell until the whole development has been sold since no one is going to want your unit when they can get one customized to their liking down the street for the same price.
I'd talk to the builder and find out their policy on contingent offers. Our builder initially said they wouldn't work with us until we sold our home but after our realtors spoke with them about their plan, we were able to negotiate a time table for when we had to sell by (since they hadn't even broken ground yet). We are in escrow on our current home now and hoping to close so that we can move forward getting our new home. Good luck!
Different areas - banks - builders - your own financial profile - may yield varying answers.
We built custom construction and were one of the last homes built in our development. With the custom construction we first had a construction loan to our builders preferred bank. We went through the general basic qualification process we had to have 20% of the cost of the total construction in our savings. However based on our financial profile we only were required to have a built up 10% down by end of construction. The other 10% sat in savings and we could pay more or not.
With custom construction building the close is at the end of the building process so each month we were only paying on the amount of money that had been drawn for the build plus a certain percentage that would eventually build up toward 10% down. The draw stages were preset by the bank based on what the builder needed - such as after the dig, after that framing, after the drywall etc.
Our builder had a program, if you owned home and were trying to sell it - if the house was not sold by the time your cousin construction was done then the builder would actually buy your house for fair market price. However we were an out-of-state relocation so that wasn't necessary for us.
Unlike with buying a house on the market- if you decide to walk away you're not just losing your earnest money you're going to lose a lot more than that. With the custom construction, your construction loan doesn't turn into mortgage until close and then you convert it So you can't just walk away from the house - it is yours!
whether it's best to be one of the first or one of the last in a neighborhood really depends on your area and how desirable that development is or is going to be.
And again, whether your house appreciates in value depends on the quality of the build(er), area, and desirability of the homes in the area.
You have good questions- I would highly recommend that you seek out your own real estate attorney and talk to the builder and bank. Every area and situation is so different it's important to get the right information for your area and for your personal situation.
DH and I lived in a new construction we built for 3 1/2 years. Due to job transfer we have moved. Our builder was Ryan Homes. I would never buy from them again.
Generally, no once you are under contract you have to follow through. And, yes you would lose your deposit. The builders are not friendly when it comes to stuff like that.
Definitely be one of the last. LAST. Laast. I cannot say this enough. A lot can change in a neighborhood from the time it begins to the time it ends.
They depreciate - like everything else in the housing market and since the builder is still building one street over or something, if you try to sell (like we did) you have to take a BIG loss.
After doing the new construction route, we will never do it again. We came to the conclusion that if you adore land stripped of all wildlife and replaced with vinyl-clad lego-like homes, then this is the way to do it.
We are under contract for a new construction. Not custom home though, we selected a standard floor plan and are doing no upgrades except for those we negotiated in.When we wrote the contract we asked for an extra window, privacy fence, upgraded carpet pad, tile in master closet because its off the bathroom and I didn't want carpet in there, backsplash and a few other small things. Granite came standard for us.
Our deposit was $2k on a $155k home. So far the process has been very smooth and we are really enjoying it. We will select everything for the home and so far have done the outside including siding, brick, trim, doors, windows, etc colors and styles. We have done the cabinets, countertops and flooring. I've written about our experience thus far in my blog, link below, if you want to check it out.
We went with the new construction route because due to the local house marketing we could get this new home for the same price as a home that is 20 years old and needs lots of updates. For us, it was the best option. We do not see being our forever home but it would be large enough for us to start our family and stay for many, many years. The best thing about this development is that its mostly done and of the lots remaining they will all be larger homes than ours, so in a different price range. We hope that if something happened and we had to sell in the years to come, even if they are still building, it won't effect us much.
Our house building adventure (UPDATED 8/20/12)
Wedding Planning Bio
Our wedding blogged! (Click Brad & Briana on the right side)
As you can probably tell, most of your questions completely depend on the state, city, the builder, and even individual neighborhood.
We had to put down a 5% deposit to get the process started, and our builder doesn't do contingencies. We handed over our check and then put our house on the market right away to make sure we had plenty of time to get it sold. We're now in temporary housing waiting for it to be built.
There are benefits to being the first to build and the last. I'll bet that the first people in my neighborhood to build got better prices as an incentive. The most prime lots were sold first. But as someone else mentioned, there is a risk if the neighborhood doesn't work out the way that the builder envisioned.
We're about to build one of the last homes in our neighborhood, and there are benefits there as well. The rest of the neighborhood is built, so there won't be any bait and switch about what is actually going to be built like they did to people who built when there were still huge pieces of undeveloped land. People were told one thing was going to be built, and then the lots were rezoned. We don't have to live in a half built neighborhood. We don't have to worry about the builder undercutting us when we're trying to sell, and our house will be one of the newest in the neighborhood. But the down side is that the builder didn't have a lot of motivation to negotiate. They didn't reduce the price of the house at all, and they didn't throw in any upgrades. There are only a few lots left, and the neighborhood is already desirable.
We would certainly have come out ahead by buying an existing home instead of building a new one. No question, we won't be able to sell the home for what we're paying for it when we're done. But we didn't love any of the existing homes the way we love the home we are building. We are paying a premium, but we're okay with that since we plan to live here for a long, long time and want it to be exactly what we want.
We were the 2nd to last to build in my last development. It was just at the start of the boom, so the downside to that is that we ended up paying about a bit $100K more for our home than others in the development did. The neighborhood was put up in 1998 and the largest model was selling for just under $400K. By 2002 the base price on our home (2nd largest model) was $515K. The person to build last in our development, same model, paid $600K base.
This was Long Island.
That builder required a 5% deposit to break ground and all upgrades paid in cash.
So again, it really depends on the market as far as pricing goes. When our appraisal was done on my current home, also new construction, it was written that our market was "steady and increasing" because around here, new construction is selling better than resale. The base prices of the homes in my development have gone up a bit since a year ago and they are still selling.
For this home we had to put down $1000 to hold the lot, 5% to break ground and then every upgrade was 20% down up front. If we backed out, we lost everything we put down PLUS we had to pay another 5%. Basically covering 10% of the base price of the home in addition to 20% off all upgrades.
READ YOUR CONTRACT. Get a REA to look it over. I know that some large, national builders will NOT put mortgage contingencies into their contracts. Once they break ground, they are invested in a property in terms of the money that was put out for material, labor, etc. It makes sense that they would want that money back.
We actually got a lot of incentives for being one of the first to build, but one of the big pluses, which I'm seeing now, is that whenever I find ANYTHING wrong at all in the house, they are here to fix it immediately. When there are a lot of houses already done, you can be waiting a long time for them to come back and do the odd repair here and there.
We live in mid-MO. When we made our offer our agent told us we could offer less but felt the price was pretty good. She was an agent for a builder for 15 years so she knew they often don't decrease the price unless they are taking something out. So we decided to add a few things and cross our fingers. The privacy fence was a big one for us and would have cost us in the $3k range to add. So being able to get that with the price was HUGE for us. We also added in a tile backsplash with again would have cost us a lot more to add than it cost the builder. The builder told our agent it was close but he was willing to do it all. We couldn't have been more excited!
Our house building adventure (UPDATED 8/20/12)
Wedding Planning Bio
Our wedding blogged! (Click Brad & Briana on the right side)
Our builder requires 5% down, non-refundable, no contingencies. We actually sold our current house before we put down the deposit on the new house just to be sure we didn't have any issues there. As PPs have mentioned, there are pros and cons to being the first and last to build in a neighborhood. Our neighborhood is about halfway done being built. We basically selected it by visiting all of the neighborhoods in our price range within our target area and determining which has the best lots still available.
As for depreciation, I'm not sure I would do a new construction unless it was a "forever" house. They depreciate right off the bat (like driving a new car off the lot) and you will have a difficult time selling for several years until the neighborhood and other surrounding neighborhoods with similar homes in a similar price ranges are completed.
Good point. We made sure to include the appraisal contingency in our offer.
Our house building adventure (UPDATED 8/20/12)
Wedding Planning Bio
Our wedding blogged! (Click Brad & Briana on the right side)