Building a new home can feel like a dream come true. Property owners are able to choose the layout and decor that they’ve always wanted. When purchasing a home, the first thing buyers often wonder is when they’ll have to pay the down payment. In this article, we’ll explain the ins and outs of down payments for new construction home loans.
New Construction Loans — When Do You Need One?
Purchasing a new construction home is a unique process. While the traditional mortgage can finance a resale home, there are different ways to finance a new construction home.
Down Payments on New Home Loan
The best time to reach out to a mortgage lender for a new home is during construction. This allows you to negotiate a down payment efficiently.
Various factors determine the amount of down payment:
- -Availability of cash
- -Buyer's credit history and credit score
- -Type of loan
Homebuyers who qualify for USDA or VA loans can be exempted from a down payment. However, other loan options require at least a 3% down payment — the typical down payment is 20%. The period for a down payment for a new home is similar to the down payment on a resale property. In both purchases, the down payment and closing costs are due at closing.
When Is the Down Payment Due for New Construction Homes?
Determining when the down payment is due for a new construction depends on your financing option.
You can make a down payment during construction if you want the property built from scratch. Your ability to secure a construction loan determines the time for a down payment. Some contractors may require an early down payment.
If the home is already complete, you can pay the down payment when closing on the house.
Builder Deposit/Earnest Money — How Is it Different from Down Payment?
Earnest money is a common financial aspect of purchasing a home. If you are looking for a new home that has recently been finished, you can finance it through earnest money — unfortunately, the earnest money is uncommon if the property isn't built yet. In that case, a builder deposit is more appropriate.
A builder deposit is the down payment to the contractor. The down payment is often 5 - 10% of the total cost. This price may be higher if you need the contractor to perform upgrades on your new home.
How to Protect Yourself When Buying a New Construction Home
Buying a new construction home can be exciting. However, the process can involve more risks than purchasing a resale property, primarily because you deal directly with the builder rather than a real estate agent. But such risks shouldn't hinder you from buying and building your new dream home. Here is how you can protect yourself when purchasing a new construction home:
- -Analyze the contractor. Not all contractors are trustworthy. Checking previous customers' reviews is essential before selecting a builder.
- -Confirm the price tag of the property. The builder deposits are usually higher than the earnest payment. You should confirm with the mortgage lender whether you can get the finances needed.
- -Read the contracts comprehensively. You should not be naive and assume they are treated in good faith.
- -Have legal protection and insurance. Anything can happen during construction. What if the builder fails to complete the construction? When do you start paying the mortgage on the new build? Legal protection and insurance can help you understand loan terms and preferred lenders.
Purchase Your New Home with Confidence By Working with Covington Homes
Knowing the answer to "When is the down payment due for a new construction home" is key before purchasing a new home. However, if you select a trusted builder, you don't have to worry about the risks.
Covington Homes is a trusted home buyer partner in Colorado . Our firm is family owned and focuses on customer services and care. We hold on to our sense of family by providing community-based services to our customers. We also understand that a home is a special place to relax with family. Therefore, our plans are meticulously executed to provide the best place for us and future generations.
Contact us if you want a builder you can trust with quality and the highest customer service in Colorado.
Featured Image: Andy Dean Photography/Shutterstock