This is one of the least pleasant steps to buying any home, but most especially when dealing with new construction. This is true for several reasons:
- You will not know the final contract price on your new home until 30-60 days after contract signing, due to the design process
- It is not possible to get complete information until later in the process (such as insurance prices, or floor tile and shower tile prices)
- You will have to go through financing arrangements with the developer’s preferred lender to qualify for any financing discounts, and possibly even to stay in compliance with your contract’s requirements – even if you prefer to use your own bank. So you may be running through the full financing process with a couple different banks simultaneously; in fact, it’s probably best to do so
- You will likely not be able to lock your interest rate until about 30 days before closing, but you must start the actual financing process within 7-10 days of contract signing – and will need to show ‘lender approval’ by 30 days after contract signing (although that ‘approval’ will be highly contingent)
- Your lender knows the build process will actually take about 6 months after contract signing, and therefore your file is not ‘top of the list’ for processing, as other loans will need faster action
- Many lenders have what seem to be sloppy processes, requiring you to resubmit materials frequently throughout the entiresix-month process
- Your financing is still contingent on an appraisal that cannot be completed until about one week before closing
Having said that, your lender will have a significant impact on the comfort level you experience with the building process. It is important that you have your materials ready and available, you practice your patience skills, and you keep your real estate agent fully informed, as we can help with this part of the process as well. To help get your materials ready, and to also help you (and your real estate agent) understand your financial capacity, you should seek a pre-approval letter and evaluation from a bank before selecting any floorplans or neighborhoods.
Also, because this process is going to take at least 6-months (after contract signing), you should only engage in this process if you have a strong belief that your financial situation will remain stable throughout the process. Once you pay your deposits, those funds are at risk of loss if you end up not being able to obtain financing to close on the property. If a developer can show they have used your deposit money to pay for materials/labor associated with your home, the law permits the developer to keep your deposit money if you fail to close. Again, having a real estate professional experienced in building new homes, by your side and representing you, is really important to reducing stress and to successfully navigating this process. At the Chong Miller Group, we stand ready to help. We’ve been there, we know the process, and we can keep you focused on your goal while keeping the developer focused on building you exactly the home you want.