Too risky? Starting build in spring but don't close til July 2

14 years ago

The Good: We already own our land and builder is lined up (house plan is still a work in progress). We successfully sold our home by ourselves and cleared a very nice profit. We will have 30% of our project cost in cash. Purchase agreement is signed, $10,000 in escrow.

The Bad: We don't close until July 2. Our buyer is a physician who will not be joining the hospital here in our hometown until next summer, hence the closing date. He and his family will not be relocating until then. Our sale is NOT contingent on his current house selling or anything of that nature.

We would like to start our project in spring but will not have that profit from our home sale, which is approximately 6% of our project cost. Do we start build anyway? COULD we start build, would a bank even approve us under these conditions? We have family that could "float" us a loan, but I guess I would rather not resort to this. Not trying to sound young and dumb (although we are young and this is our first build) but just wondering if anyone else has been in this situation, or if this is "risky business".

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Comments (11)

alabamanicole
14 years ago
Chances are the bank will not permit you to use an informal family loan, but they may allow one with real loan paperwork provided your credit allows the extra debt. The bank will probably also not allow you to close on the construction loan unless your credit and income levels are approved to support BOTH houses. But what your bank will allow is a question for your loan officer.

If it were me, I would proceed with planning and budgeting, even to the point of spending money on the project, but sign contracts until I had successfully closed on my house. You can always start prepping the site and such without the bank being involved and without signing a contract with the builder. Just be sure to get lien releases on *everything* or it could interfere with your loan eventually,

July is a long time away, and many things could happen between now and then. Just because the house sale isn't contingent on anything doesn't mean the buyer won't back out, either though one of the houdini clauses in the contract or just by abandoning his deposit.
tinycastles
Original Author
14 years ago
Very valid points alabamanicole. We are able to avoid paying capital gains due to the summer closing, but on the flip side it means waiting that much longer to really move forward with everything:(

I should stop complaining, I am very thankful the timing worked out...we sold it ourselves and the house was on the market less than 6 weeks. Some homes in our price range have been on the market over a year. I'm just so excited, but I should probably cool my jets because like you pointed out, many things could happen.

We are within our rights to keep showing and taking backup offers; should I continue marketing the house?
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worthy
14 years ago
There's lots of slips between cup and lips.

We are within our rights to keep showing and taking backup offers; should I continue marketing the house?

Absolutamente!
tinycastles
Original Author
14 years ago
hahaha worthy- truer words were never spoken. Particularly relevant as I sip my glass of Malbec.
creek_side
14 years ago
You can probably clear the building site and put in a drive, but not much else without the eventual lender having issues. Talk to a loan officer about how far you can go without having the lender involved. They may insist on overseeing the construction.

FWIW, our loan officer specifically warned against turning the first spade of dirt without their construction department being involved. We did put in the drive and partially clear the site ourselves, so that we could reach it by car. The were OK with that. We did not do any grading or earth moving on the actual building site itself.

If you need a site survey, that might also be doable.
fish7577
14 years ago
If the buyer really wants the house, can you complete the closing, then rent from the new buyer for several months? It can all be written up as part of the sales agreement. If you have a buyer, I'd get the deal done as soon as possible. Perhaps it will require some concession on your part (lower price or perhaps rent for a little higher than you'd like), but peace of mind is a valuable thing.
shelly_k
14 years ago
I agree with the last poster. Try to get your buyer to go ahead with the closing and rent the home back to you until July. We've done this before and it worked well.
phillipeh
14 years ago
It seems to me that if you have a signed purchase agreement that includes no contingencies, and you can support payments on your current home and construction loan, you should be ok. Your buyer is a doctor -- that's like money in the bank. No contingencies? He's going to complete the sale or you can sue him, and I doubt he wants to start his career off with that over his head.
alabamanicole
14 years ago
"He's going to complete the sale or you can sue him,"

Unlikely. Under a standard real estate contract, if a buyer doesn't complete the sale they only loses their deposit, and even then there are plenty of ways to wiggle out of the sale.
gbsim1
14 years ago
No way would I go ahead and start building this far in advance of a sale. Losing 10K is nothing to the buyer if they find a house they like better. I'd push to complete the sale and rent.
tinycastles
Original Author
14 years ago
Thanks to all who responded!!!

Update: The closing is first part of May now. Works for both parties. We'll be able to start the build 2 months sooner too.

And the buyer's commitment should he back out? It's a moot point. A buyer can usually find a loophole that allows them to wiggle out of a Purchase Agreement if they really want to. Plus we're not the types to take it to that extreme.