Navigating New Construction and Selling Your Current Home:
What You Need to Know
Hello, dream teamers! It’s Wednesday, and you know what that means—it’s time for “What’s Up Wednesday.” I can’t believe that this weekend is Labor Day weekend; it’s blowing my mind. So many things on the calendar, and it feels like we’re gearing up for the countdown to Christmas. But before we get into holiday mode, I want to share some insights on a question I’ve received repeatedly over the years.
Do you love new construction but wonder about the logistics when you already own a home? Many people who have never built a home before often ask, “I own a home now, but can I build a new one without selling the old one? Can I sell it right before I’m ready to close on the new home?” The answer may not be as straightforward as you’d like, but it’s a case-by-case situation.
New Construction and Loan Commitment:
First and foremost, it’s important to understand that each builder has their own set of rules and requirements. Typically, a builder will not commence construction on your new home until you have secured a loan commitment. This commitment signifies your commitment to the total dollar amount you’re contracted for.
To obtain a loan commitment for new construction, you need to go through underwriting with your bank or lender. They will evaluate your financial situation, including your credit, debt-to-income ratio, and other factors, similar to a regular loan application. The key difference is that, with a new construction loan, your lender is committing to a specific dollar amount between the time you apply and the time you close on the loan.
Conditions for Loan Commitment:
Several factors must remain constant from the time you apply for the loan to closing, which means no significant changes can occur. For example, your credit score should not decline, and you must maintain stable employment. This condition safeguards both you and the builder’s investment.
House Sale Prediction:
The crux of the matter lies in whether there is a prediction on your loan commitment that mandates the sale and closure of your current home before you’re qualified to purchase the new one. In most cases, builders, including us at Cannon, will not start construction until you meet this prediction.
However, there are scenarios where individuals qualify for both loans. For instance, if you own your current home outright, owe very little, or are in excellent financial shape, you might be able to afford both loans. In such cases, you can time things so that you list your house for sale around 60 days before your new construction home is completed. This approach allows for simultaneous closings or a very short time frame between them.
Finances and Lender’s Decision:
The key factor is your financial situation and your financial institution’s policies. The decision isn’t usually up to the builder but rather to your lender. Builders are focused on protecting their investment, and most will insist on the prediction being met before they start construction.
There are, however, potential loopholes and ways around these restrictions. It’s crucial to discuss your specific situation with your builder, sales consultant, or realtor. They can guide you through the process and help you explore options that best suit your circumstances.
In a nutshell, you can start building your new home before selling your current one, but most builders will want you to meet any predicated conditions first. If you’re unsure, don’t hesitate to ask the question and seek guidance from your builder, sales consultant, and lender. Keep in mind that every situation is unique, and there may be a solution that aligns perfectly with your needs.
As we approach the Labor Day weekend, I hope this clears up a common question I receive. Wishing you all a fantastic and safe holiday weekend. Can you believe it’s already September? I’ll see you all on September 6th. Until then, have a wonderful time, and thanks for tuning in!
For the past 50+ years, Cannon Builders has been a family-owned company providing new construction on residential structures. Our custom-built houses in Warren County and Lincoln County, MO prioritize quality workmanship with a wide array of home styles to fit the diverse desires of homebuyers. All our communities in Wright City and Troy qualify for the United States Department of Agriculture (USDA) Guaranteed Rural Houses Loan Program, making homeownership attainable for many more residents. Our company is located in the St. Louis, MO metropolitan area, and we are proud of our history as dream home providers.