Contributed by Julie Haroun, Manager of Sales and Marketing and Sandy Rappaport, In-House Sales Representative
Buyers often ask about the timing required for financing their new SIR home. Many homebuyers do not purchase their home for all cash and need to obtain financing for a portion of the purchase price. Obtaining an end loan on a completed house that already has its Certificate of Occupancy (“CO”) is a simple process with any bank. However, when a house is under construction, buyers question whether they need to obtain a construction loan or an end loan and when is the appropriate time to apply.
At SIR Development, we do not require construction loans. SIR purchases the property, builds the entire home and obtains the final CO. In this instance only a conventional end loan is required. This applies to any stage of the construction whether it is raw land, a partially completed home or a finished one. SIR will provide a sales contract with detailed specifications attached that outline every detail about the house and what to expect. If certain items have not been chosen yet such as light fixtures or kitchen counters, SIR will give an “allowance” so that the contract can be signed and certain decisions can be made later with our in-house design team during construction.
The homebuyer can apply immediately for a loan and the appraisal can be performed in two stages. The first stage is performed with plans, specs and a visit to the site. A final appraisal will be required once the house is complete to confirm that it was built according to specification. Note that the appraisal is based on the future value of the property as per the plans and specs of the house.
In a nutshell, the options for mortgages for home buyers who will close on a new construction purchase anytime from 3-12 months are either 1) getting a mortgage pre-approval but not locking in the rate, and essentially get a new mortgage approval when the closing is 45-60 days away or 2) locking in an interest rate but paying 1% of loan amount for that privilege, known as a “long-term lock”. We usually recommend that our buyers work with a mortgage professional to assist in this process. Michael Daversa* of Atlantic Residential Mortgage explains that in these instances he would personally take a risk with option #1, but admits that most of his clients tend to pay the fee required to get option #2. “They do not want to risk rates going up and need to know their actual costs”. However, Daversa cautions that taking the second option and locking in a long-term rate does not give you the benefit if rates go down…the borrower would be committed to that locked in rate.
*Michael Daversa is the President and Founder of Atlantic Residential Mortgage, a Westport based mortgage banking firm. He can be reached at 203-227-7100 or firstname.lastname@example.org.