Buying a new construction home?

Question

My husband and I are thinking of buying a new construction home in another state this year and would not like the house to be completed until next May (if possible) So my question is would we have to start paying on the mortgage immediately or when we move in? Also would we start paying state taxes for that house even if it hasn't been completed yet and also homeowners insurance?

Answer 1

The builder is most likely not going to let you go that long without taking out a mortgage because you are tying up his line of credit and/or he is paying interest on a construction loan. So, he is going to want the house sold and closed on as soon as possible.

As soon as you get the mortgage, you will have to start making payments. You may be able to find a special program that allows you to close on the mortgage and not make payments for the first few months. There are a few of those programs out there, but it is not in your best interest to do so. You may also be able to find on that lets you make interest only payments for the first 6 months or year.

You will be responsible for taxes from the date you close, and again, the builder is going to want to close as soon as possible so he can get his money. By not closing, he is essentially loaning you guys his money at a zero interest rate. Not a good business decision on his part.

Until the house is completed, the property is taxed based on the value of the land. After it is completed, it is based on the value of the land/house. The builder is responsible for the taxes up until the point of closing and you are responsible for the amount after that. At the time of closing, you will actually receive a credit from the builder in the amount of his taxes up to the date of closing and then you will actually pay the taxes for the whole year. In short, you pay his share, but at closing, he gives you the money to do so.

Homeowners will be required if you have a mortgage. If you pay cash for the thing, you don't have to have homeowners. But there is no mortgage company in this country that will give you a loan on the property and then allow it to go uninsured.

If the house hasn't been started, then you can negotiate a start date on that particular lot so that the house is completed approximately next May. However, the builder may not be willing to hold the lot if he has other people interested in it who are wanting to go ahead and build on it. Also, in some subdivisions, you are required to start building within X-days of purchasing the lot. That keeps people from buying up lots to sit on and then resell once the subdivision is almost complete. It also allows the subdivision to "close out" and not have construction debris/noise/trucks in and out years from now. Plus if it is a subdivision with an association, they need to take posession of the subdivision from the developer, so they want all of the lots sold/build on as soon as possible.

Answer 2

Technically, you will not own the home until after the closing. Thats when you start paying the mortgage and insurance, etc. Before that the builder owns it. I have never heard of a builder closing on a new home before it is fully complete. THe same goes for insurance- you have to insure it beginning the day you actually close on the property and own it.

Your taxes for this year would be for unimproved property, basically an empty lot. It wouldn't be until next year when your property is re assesed that you will be taxed for having the house on it (which will probably increase your taxes because the value of the land will be higher with the home on it).

Answer 3

If you're buying from a developer, you most likely would give them an earnest money deposit to secure your future purchase. But you wouldn't close on the the transaction before construction was complete, so you wouldn't start paying on your loan until that point. First, a notice of completion would be filed, then you would close your purchase of the property, and then your first loan payment would be due in one or two months.

However, if you buy an individual lot and finance construction of a custom home, you would have to be paying at least interest on the construction loan before it was completed (the construction loan would probably include a land draw to pay off any existing loan used to purchase the land). Upon completion, the construction loan would be paid off with a conventional home loan.

Hope that helps.

Answer 4

A lot of construction projects take years to plan so, if back in 2006, Joe Builder thought it was a terrific idea to build 400 condos with shops below, a parking garage, and a playground, those projects start to come on line 2 or 3 years later. and, even though it seems ridiculous now, in many cases, once the trigger is pulled, you can't put the gene back in the bottle. On the bright side, you'll be able to snap up those condos pretty cheap at the builders bankruptcy / liquidation auction.

Answer 5

Depends on how the deal is structured. If you have ownership of the land upon which the house is to be built, then the answers to all your questions is 'yes'.

If the contract is structured such that the contractor owns everything until you close, then you do not pay any of the above.

Answer 6

well i guess that depends on the mortgage agreement and when the sale of the home closes.. i would figure after you own the property you would have to start paying for it.. i would ask your lender though and see what they can do.. i found some great home buying tips and it has tons of information
http://www.stevemarowitz.com/PageManager/Default.aspx/PageID=2001414
hope it helps! good luck!

Answer 7

Depends on if your buying from a builder or buying a lot and contracting some company to builder for you..
If from a builder. then your not responsible for anything until the day escrow closes and you receive your key.