Buying new house question

[Galaril]

We are thinking about having new home built as opposed to buying an older house and had a question. If we pick a builder and design of a house etc. when do you pay actually the builder for the home the downpayment on the home or whatever upfront? Or do you pay after the home is built? And what kind of time can I expect for a house to be completed (generally)?

[Logan]

I'm figuring it would depend on the builder, but once you decide on a design and sign a contract, you would give a 10% deposit.

[Ben E Lou]

It depends on how you're doing it. We're in the midst of having a home built in an all-new section of a subdivision, so I can speak to doing it that way. The basic principle to remember is this: in terms of payment, it is *exactly* like buying an existing home. You get your price, pay earnest money, and then you close a few days before moving in. Just like with buying an existing home, if you back out before closing, all that you forfeit is your earnest money, which in our case isn't that much.

One caveat: we're building in a "hot" community: growing area, near the beach, great weather, etc., so the builders know that even if we back out, they'll be able to sell the house to someone else quickly. Our earnest money was ridiculously low: less than 1/2 of one percent of the cost of the home. We're really in a position where if we change our minds, it's very little skin off of our backs in the big scheme of things. My brother, who is a real estate agent, says that the "normal" amount is usually around 1% of the cost. I can't say with certainty that the earnest money is as low in other communities as it is here, but I'm fairly certain that it works the same way in general.

As far as timeframe, we were told "6-9 months, depending on how much it rains."

[Hammer]

Each builder will likely have different payment terms. Our family business is property development. I'm in England so not asking for the business here :) The business is small-medium, 25 employees, and we would not even consider building a property without stage payments. At agreed points in the build you pay an agreed price - in the main to cover materials, but also wages. We are not expecting to make a profit until completion, but will not finance a customers project.

You may well find yourself a larger company that is willing to finance the project for you, but they are few and far between over here. The only reasons firms tend to do that is if they were going to build anyway. Remember you might think lack of tie ins help you, but they can work against you. The builder will almost always sell for the highest price possible, don't expect much loyalty. If in that 6 months the prices rise, don't expect them to stick to the price. With the former method you will know exactly what your getting and exactly what the price will be as you will have drawings and contracts.

Depending on variables 6 months would be a rough guide.

I stress things may be different in the states.

[Eaglesfan27]

My brother, who is a real estate agent, says that the "normal" amount is usually around 1% of the cost. I can't say with certainty that the earnest money is as low in other communities as it is here, but I'm fairly certain that it works the same way in general.

As far as timeframe, we were told "6-9 months, depending on how much it rains."


We looked at having a house built and we were told the same things. 6 to 9 months for it to be built and 1% earnest money.

[CraigSca]

Most builders will also look to get a certain percentage of the options you put into the home, usually anywhere from 10-15%. This may have changed, however, since the housing market has really slowed.

[Flasch186]

on a custom home from a smaller builder it can happen where you get a construction permit loan and have it done that way, and then your loan is front end.

If you do it like SD, your deposit is strictly a security deposit (although with SD's case how much security really does it give the builder) and that money reverts back to you to go towards your side of the HUD-1 at closing. Your loan is what you sign for at the closing table so you actually hand over your D.P. + closing costs there (minus your deposit)

[Flasch186]

Most builders will also look to get a certain percentage of the options you put into the home, usually anywhere from 10-15%. This may have changed, however, since the housing market has really slowed.

totally 100% changed for our company. They ask for no more than your initial security deposit....luckily im too low on the totem pole to have my concern(s) about this weighed. I think its a terrible protocol.

[Craptacular]

We built a custom house in 2003 (on land we already owned), and secured a construction loan from the bank that then converted to a regular mortgage after the house was built. We paid $1000 to the builder as a deposit, and then he received "draws" from the lender as follows:

45% upon completion of sheathing of the roof
45% upon delivery of interior trim (when almost everything else was done)
10% upon completion

The bank required all necessary lien waivers from the builder before they released any money. During the construction period, we only paid interest on money that been drawn ... we didn't pay any principal until the fixed mortgage was in place after the house was completed.

FYI, our house was completed in less than four months (from a small, local custom builder), which shocked everyone. We were out there almost every day to make sure they weren't cutting corners. ;)