If Buying A Home Or Condo That's Not Built Yet...
When do I actually close? While it's being built, after it's completed, or ??? Does it matter if it's a spec home by a builder or a planned community? I'm a little leery about sight unseen, as well as signing a contract now, and having the market fall out from under me in a year or so. Thanks!
-e-
consult your realtor/ or loan officer....this is a sticky situation....don't worry too much about the market, that's a gamble anyway,
In my experience, (granted, which is fairly limited) you close when the house is built and receives a certificate of occupancy - a "CO." If you are getting your funds for the home thru a bank, they will preapprove you in the early stages (via credit check typically) but won't actually grant you a mortgage until their own appraiser comes out and values the house vs. the contract price that they are lending you the $ for.
I agree though, that you should consult with the builder and/or your lender and realtor as every situation can be different.
IMO, buying a house pre-construction can be a great reward (because, obviously, if you get in an early enough "phase" you win with the forced appreciation through higher prices in later phases.) However, there is also risk as was said... as with any RE investment. It's up to your own risk tolerance. I have personally had good experiences with pre-con stuff... it's a little scary but I just held my breath and took the plunge.
Are you looking to buy in SD - what area? The San Elijo Hills new townhomes look pretty cool. A friend of mine just signed a contract 2 mos. ago and she says her townhouse is already up $32K from her contract price. I don't get it... crazy SD!
Well, good luck to you!
Elf -
Thanks for the info. I'm considering a couple of things, including the San Elijo developments, downtown, and potentially farther north (Temecula / Murrietta). I'm in a position where I have properties with lots of equity, some cash in the bank, and good credit. My job history is a little spotty from the banks perspective, since I was self-employed for a long time, went W-2 for a year (to take a chance with a start-up that imploded), and am now currently self-employed again, although I'm not sure how much contract work I have in front of me.
I could certainly get pre-qualified / approved by a lender, and could come up with the cash to close on the deal, but if I sign a contract today for a place that isn't complete for a year. If the market drops, am I stuck? I guess that I'd like to have my cake and eat it to - I think that risk is OK, but I've always been successful by limiting my risk to the downside (learned that from commodities!)
Thanks!
-e-
eConrad,You may want to consider a construction/perm loan,and you will only have 1 closing. This will also let you know what you qualify for.
econrad,
Don't know what the customs are in CA, but here, new construction buyers sign the purchase contract usually before home is even begun (for single family detached), and with T/H or multi, it varies. Ground may or may not be broken by the time the purchase contract is signed. Closing takes place after the construction is completed and, as was pointed out, the city issues a CO.
Delivery (completion) dates are estimates only (of course the weather here is much different from SD). However, unless the builder you sign the purchase contract with hasn't even started site work, given the long building season out there, I wouldn't think your home would take 12 months to complete. If it's true custom, sure, but otherwise not.
Choose your builder carefully--for several reasons. Not just quality of construction & reputation, but also the post-closing work (service work to take care of punchlist items, warranty issues, etc.) You want to make sure that the builder organization will live up to its responsibilities once the sale is closed.
Nancy -
Thanks for the insight. Would this apply to a planned development of tract homes? I would then essentially be funding the developer. Of course, that may be the price one pays for getting in early. Just a thought.
-e-
e,
Yes. I didn't know what type of home you were thinking of. Most definitely applies to tract or "production" housing and especially the "post closing" stuff. True custom homes would take longer to build, but at least here in PA, the routine is the same. Only exception would be where a spec has already been built and substantially finished inside.
Nancy
Hi E,
I'm an "e" too (erica) - nice to meet you , fellow SD'er. <IMG SRC="images/forum/smilies/icon_smile.gif"> I've made reference to it before, it is insane here. For this reason, I too am considering looking in pre-con in Temecula/Murietta/Riverside County. It's the only place here (outside of "creative" deals of course) that seems to have reasonable appreciation potential still. Every month, I swear we MUST be at top of market in greater SD but people still keep buying houses at ridiculous prices. I say, it's like SPAM - if nobody clicked on spam or bought products advertised with it, we'd see spam drop off. If we didn't have people going into bidding wars "just to get into SOMETHING" then we wouldn't have such insanity in SD housing! But I'll get off my soap box now...
You mentioned being worried about being stuck when the home was built and if the market was down but you wanted to get out. Well, if you signed a contract for $x and the builder released many phases between your $x price and the time of your home's completion, it's likely that you would have experienced a reasonable "forced" appreciation and could sell the house quickly at this "appreciated" price, because there might be buyers who want their house now and don't want to wait 12 mos. OTOH, if you really really wanted out, in my limited experience, the builder will let you out of the contract but keep your non refundable deposit that you paid at contract signing.
Hope that this is helpful!
-Erica F. aka elf2588 <IMG SRC="images/forum/smilies/icon_smile.gif">[ Edited by elf2588 on Date 02/16/2004 ]
econrad-
Just for future reference, when you purchase a property that is in the process of being built, you might want to structure the purchase agreement to say your name (or entitiy) and add the words "or assignee." In many cases, it will grant you greater flexability in the deal. If the price apprecitates greatly, you can assign the contract to another party (for a premium.) Many people I invest with have made great returns on thier earnest money deposit by structuring the purchase and sale agreement this way.
Good luck on your investment.
If it is a planned development there will almost always be a person or company handling sales. If it is a loft, condo, or townhome, etc, remember there will probably be HOA fees in addition to monthly mortgage fees.
When principal construction is complete the builder will ask if you want certain improvements made, which can inflate the purchase price of the home (Especially in condo/townhome situations). Therefore the final purchase price, hence the mortgage payment, won't be settled until you are close to move in time. (that is, if the improvements you requested don't take too long to build)
I know two people who bought in a new development in playa vista, CA where the value of the homes went up 20% in 3 months because there was such demand for the homes in the planned area. ON a 500k home, Your down payment of 50k is basically buying you another 100k in equity by the time you unpack your dishes.