"Need to Knows" When Buying
New Lenox - Chicagoland New Construction
With so many housing markets across the country experiencing a severe shortage of existing homes for sale ... in growing numbers, new construction homes are garnering serious consideration from home buyers ...
There are a variety of factors at play explaining this growing interest in new construction. The fore-mentioned supply shortage is just one. Certainly, the condition, location, and features found within many of the existing homes found on the market are also contributing to their sale numbers falling short of expectations and hopes.
The "new car smell" or prospect of being able to personalize and semi-customize a home is moving many prospective home buyers to consider new construction as an option too. Who wouldn't consider this option an exciting one?
But if the purchase of a New Lenox- Chicagoland new construction home sounds enticing to you ... there's a few "need to knows" you should be aware of prior to your home search and purchase.
As with any home purchase: It's best to start with an understanding of the home buying and financing processes.
With a new construction purchase: It's smart to go one step further. Take the time to educate and familiarize yourself with new construction terminology and a thorough knowledge of the construction process in your area.
In the New Lenox - Chicagoland area you'll find:
- Most lots are platted, subdivided and owned by Developer/Builders
- These new construction homes are marketed and sold from Model Homes - Sales Offices, most often located within the subdivision being considered for property purchase
- Home buyers can semi-customize their home from a menu of features offered by the Builder
- Note: Fully-completed new construction homes are sometimes available within these subdivisions as well. Minor customizations are sometimes still possible and negotiable when purchasing these completed homes
With this type of new construction purchase: The Builder typically funds their own construction process (usually with their own banking relationships, or cash). However, a downpayment fee may still be required by the Builder prior to the start of actual construction or at the signing of the contract.
When the home is completed, the Builder sells the home outright to the new contracted buyer. Previous to this time, the buyer must have secured traditional mortgage financing, according to the agreed-upon Sales Price. A Closing on the completed home takes placeafter the Final Occupancy Permit is issued.
Should you be building a home on a lot you own: You most likely will need to secure a Construction Loan (something not always easily found these days).
After construction is completed: You will need a permanent, or "end loan" to pay off your Construction Loan. (Construction Loans are typically a short term, interest only type of loan ... not intended to be for a Fixed Term, such as 15, 20, or 30 years.)
Your permanent "end loan" Mortgage will be based upon the "completed" value of your home, as determined by your Mortgage Lender's Appraisal. This value estimate is typically in line with the cost or value of the lot, plus the Construction Costs (Labor and Materials).
In these circumstances, your new "end loan" loan is considered a Refinance. Loan-To-Value considerations for your loan are based upon the new Appraised Value.
Now that you know the basics of the new construction process, the next step is deciding:
- Which Builder to work with
- The location of your new home
- The model home you like
- The amenities you desire (and can afford)
How do you do that?
- Strongly consider working with a Buyer's Agent
- Find a new construction Buyer's Agent that knows, understands, and has experience representing buyers in the new construction process
Ask each Builder you are considering these important questions prior to taking the next big step, signing a Contract:
2. Upgrades, features that are "add-ons" to the base home price? (Don't assume they won't, or can't, negotiate on price/costs.)
3. If offered, are the "free options/upgrades" for using the Builder's preferred or suggested Lender built into the Builder's sales price (is the price "padded")?
- Ask the Builders (or their sales representative):
Remember: With new construction, the property taxes for the first year will, most likely, be minimal. Once the home is completed, an Occupancy Permit will be issued and the sale Recorded. The Assessor then acknowledges the sale.
After the next assessment cycle: The Assessor will fully-assess the property, back-dating the assessment to the date of Closing. This typically results in a larger tax bill in the second year of ownership.
The Lender typically collects escrow monies based on the original low tax bill, which is based on the vacant lot. Taxes are typically paid in the year following the Assessment or Tax Bill.
Example: 2016 property taxes will be disbursed throughout Chicagoland suburbs soon. They are payable in two (2) installments, normally June and September. (Note: Cook County has its own timetable for release of tax bills.)
At the point that your new (increased) tax bills are received, your Lender will "adjust" your monthly escrow payment upwards to reflect the new higher tax bill amount (attributed to the completion of the house on a previously "vacant" lot). This catches many new construction homeowners unaware.
(See my post "Love Your New Construction .. But Educate Yourself About Future Tax Bills" for further info and explanation regarding this. Contact me if you have questions.)
Your Mortgage Lender will now require one of two things:
1. A sizeable "lump sum payment" made to your escrow
2. A significant monthly escrow payment increase to help you "catch up" on the shortage in escrow
The bottom line for new construction Buyers is:
There's a lot to know and consider before you make a final decision regarding a new construction purchase. Be aware of this fact and take steps to ...
Educate yourself. Do your homework. Ask questions of your Builder (and Lender) prior to making final decisions and contracting for your home purchase.
You'll be very glad you did, especially at property tax time ...
* Hoping to buy new construction, an existing home, or refinance a home in New Lenox or elsewhere in the Chicagoland area? Contact me! I'll put my 40+ years of Mortgage experience and expertise hard to work on your behalf.
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