When To Apply For A Home Loan On New Construction Property

Last Updated 1/12/2015

How early should buyers apply for a new construction loan when purchasing brand new property?

With new home and condo construction booming many home buyers and investors are being drawn to brand new properties. However, few have any experience with taking out mortgage loans on them. While there can be various options including construction-perm loans, construction loans, or paying cash in installments, ‘end loans’ continue to be the preferred and often best choice for buyers.

Understanding End Loan

An ‘end loan’ is just that. It is a regular purchase mortgage which begins when the property is complete and the CO (certificate of occupancy) is received. This offers far less risk and expense to home buyers as they are not bound to close or on the hook for a loan until the property is 100% completed and ready to be moved in to.

However, builders do not have a reputation for being lenient on buyers that are late with the funds to close. The period between contract signing and the property being completed can often see equity rising by hundreds of thousands of dollars, and even millions. At this point they’d love to have any excuse to tear up the contract and resell the property at the current higher value, and keep the profit themselves. That’s in addition to deposit money. Don’t give them a reason.

It’s also wise for home buyers not to be forced into using a builder’s lender without shopping around, despite promises of incentives, nor be illegally forced into using specific insurance and title services.

Pre-Approval for New Construction Loans

When it comes to new construction loans and property purchases it always pays to get pre-approved as early as possible. In fact most builders and their Realtor representatives will want to see a pre-qualification letter before signing a contract, and often even before viewing a property. This might be too early for a real loan commitment or to lock in a specific rate, but it still pays to get pre-approved, and find out if you’ve got any work to do, and what you need to maintain, or there could be a lot at stake.

Specifically find out how long credit reports, income and asset statements, and rate quotes and lock-ins are good for. Apply as early as they’ll last. Even if this documentation will need to be re-certified it is smart to get going at least 90 days in advance as lenders can get backed up fast.