Opinions for DownPayment for New Construction

16 years ago

Hello,

We have are planning on building a house in a new sub-division in Cincinnati, Ohio. The base price of the house is about $170,000.

The sub-division that we were planning on building in required a $1,000 Downpayment to reserve the lot and start building the house. We were excited to be building a new home, however, the area that the house was going to be in wasn't our ideal location (long story, but the part of town wasn't completely desirable for a couple of reasons). While we were talking to the builder, a different location became available that is the future site of the cities version of a Homearama (called Citirama).

The new location, built by the same builder that we were planning on using, will have a lot premium of $20,000 because it is such a nicer location. We are OK paying this amount because we feel the new location is worth it. However, the builder said that since we are requesting to build on the site of what will be the Homerama, the downpayment will go from $1,000 to $10,000. We are completely dedicated to building, but coming up with $10,000 before closing will be difficult. We have been pre-approved for a loan and are willing to sign a contract.

I was wondering if anyone had experience with how much of a downpayment seems right to build a house. Does it seems right that the downpayment would go from $1000 to $10,000?

Thank you all for your help.

Tim

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Comments (6)

jllmb79
16 years ago
We paid $13500 as a down payment...$5000 to hold the lot and blue prints and architecture..then $8500 to start building.
creek_side
16 years ago
The jump could be related to the marketability of the different projects, and/or the financing behind them. $1,000 seems like a very small down payment to me.

Are you buying the lot separately from the house, or as a package? What is the new price of the house on the better lot. What kind of financing is involved?
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hittlets
Original Author
16 years ago
CreekSide,

The price of the house on the old lot was $171,880 and on the new lot it is $191,880 ($20,000 more); this is the price for the house including the lot. As far as financing we were pre-qualified for an FHA loan requiring 3.5% down, however, we will do a conventional loan with 20% down. The pre-qualification was done with the builders preferred lender and assumes that FHA is what most go with and uses that as a basis for their pre-qualificaiton.

Jll, seems like your downpayment was for the lot and blueprint, and separately money to start building. I might feel better if I knew what the $10,000 was for (like a breakdown you explained), or if it was just a percentage.

Thanks,
Tim
creek_side
16 years ago
Normally, they ask for a deposit or earnest money to hold the lot and/or build the house. The deposit protects the developer from flaky buyers. The more desirable/prestigious the development, the more they may ask/demand.

They might stage the deposits, asking for additional amounts as the company committed additional resources to your eventual house. Any deposit money would rolled into your closing costs (down payment, etc.) at closing. It's conceivable that someone could get cash back at closing if the total deposits exceeded the closing requirements.

When you make your deposit, there should be paperwork that explicitly details what the deposit covers and what it doesn't cover. It should also state what happens to the deposit should the deal fall through.

If you have already paid the $1,000 or $10,000, you will have to read the paperwork. If not, ask the developer. If they can't explain it to your satisfaction, that would be a warning flag.

BTW, if you are planning on doing a 20% down conventional on an almost $200,000 house, it seems a little odd that you can't come up with the $10,000. Are the funds tied up somehow?
sue36
16 years ago
I would also look into the laws in your state. Many states have laws about how much down payment ($ and %) can be taken in different situations.
xine
16 years ago
I can understand completely... we are in a similar position. We are building in a new "phase" of a development, and we are patiently waiting for our house in another state to sell (again... sigh... the first sale fell through). Until that time, we have a "home to sell" contingency, which requires us to put down a larger "deposit". They usually want $2k, but want us to put down $5k at the sales office, plus 10% of the rest of the options at the design center (which could be $3-5k). So, since our money is all tied up in our current house, we had to borrow the money from a relative (getting a letter saying it really was a gift), and we will pay back as soon as our other house closes. We need to keep our other cash available in a reserve for the next 6 months to float us with a rental payment and a house payment until it sells.

Good luck to you!

PS -- our lot premium was $15k...