It's important to point out: Home buyers considering this type of home purchase need to understand that buying a new construction home is a "horse of a different color". That meaning there are a few extra things they should know and do prior to signing on any Purchase Contract's dotted line.
So what are some of the ways that buying a new construction home is different from buying an existing home?
Below I provide some helpful information and timely tips that I believe will help new construction home buyers. These tips are presented from my perspective as an Illinois - Wisconsin Mortgage Originator/Lender. (Although many of the following tips pertain to other new construction housing markets as well, they're specifically aimed at the Chicagoland -Northern IL new construction housing market).
First, when considering the purchase of a new construction home:
A. Seek the advice and guidance of a Realtor/Agent BEFORE entering into a Contract to Buy a new construction home
B. Consult with a Mortgage Lender PRIOR to listing your current home for sale. Learn and fully-understand ALL your financing capabilities and options
- Expect Home Builders to REQUIRE a small deposit to hold a lot, until a Contract can be agreed upon
- Be prepared to negotiate your best price first. Then and only then, discuss home building options, credits, financing. (Builders often try to intertwine these discussions)
- Home Builders typically REQUIRE a deposit/payment be paid PRIOR to the start of construction (typically 10% of the final negotiated Purchase Price)
- If you are a buyer that currently owns a home ... and it has not sold yet, you will also have to consider the following prior to taking action:
When negotiating your new construction home Sales Price with the Builder:
A. How are offers of home features/options (such as Central Air, Appliances, Upgraded Flooring, etc.) handled? Will you have a choice on how you pay for them or will they simply be added to the final Sales Price of the home?
B. If it's the latter, you must be aware that you will be paying interest on those added option costs over the life term of your loan.
- Always compare the Builder's financing options to those of your preferred Mortgage Lender. Do this regardless of any "discounts" or special offers connected to the Builder's financing.
- Ask questions and fully educate yourself regarding the future anticipated Real Estate Tax Bills on your home/subdivision.
B. Contact the Township Assessor to learn what your taxes are projected to be for the first year tax bill and subsequent tax bills (showing completed construction).
Regarding Financing Terms:
- Know and understand that Financing Terms for new construction are different than for existing homes. Here's why:
B. For New Construction: Timelines can be for 90 to 180 days, or even longer.
C. Interest Rate Locks: Typical Locks run for 60 days, but some Lenders offer 90-day Locks. A smaller number of Lenders will offer "Extended Rate Locks" to cover a buyer/borrower from "start to finish/Closing" of a new home. (Note: An Extended Rate Lock can be somewhat concerning, especially in times of volatile or rising Interest Rates)
Buyer Representation:
- Protect Yourself. Secure the services of a Buyer's Agent to assist you throughout your new construction home search, from beginning to end. (A Buyer's Agent will represent YOUR interests during transactions with a Home Builder. The Agent/Sales Representative within the model home represents the interest of the Builder)
- Hire a Real Estate Attorney to provide you legal guidance prior to signing a Contract, or at minimum, be sure there is an Attorney Review Period within the Contract
- Again, seek your Mortgage Lender's input and quote (for comparison with the Home Builder's mortgage lender's financing terms) Learn ALL the options available to you ... and the pros and cons of each.
For buyers looking to buy in the New Lenox - Chicagoland/IL & WI region,please reach out with your questions. I'll be happy to investigate and discuss all the options available to you and assist you in applying those options moving forward during your home financing and purchase.
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