Lisa Johnson's House and Home - Articles on Home, Family, and Living

Lisa Johnson on Buying a New Home or House

Chapter 5: The Downpayment

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October 1, 2003

When we picked out the home we wanted, went to the builder's sales representative, who has an office on location at the development, and simply said, "I want to buy this one!". At the time we "bought" (which is not really buying, but merely placing a deposit and signing a bunch of forms), they just started to pour the slab. We still barely had enough time before construction to enjoy a full plate of customization options.

Then it was a matter of spending about an hour signing several forms and agreements and finally putting a few hundred dollars down on a deposit.

The deposit is not the downpayment. It is simply a portion of the downpayment that eventually you will pay in full before the title is transferred to you. The deposit is not cashed by builder, but simply held in their files until the title is transferred.

The forms that you fill out do not obligate you to buy. They were mostly acknowledgements of existing facts, declaring an intention to buy, and gathering background info on you. But at this stage, you are not forced to buy. In fact, I don't recall there ever was a point where you couldn't change your mind, until after the title was transferred.

At that same time, we made some initial customization choices, and we were done. Some of the customization options we had at this time included adding more bedrooms, putting in a loft, or a balcony. Basically, anything that involved more wood would have to be decided this early, so that they can order enough wood to do the construction. All the other options, didn't need to be decided just yet.

The final total of the downpayment is mostly decided by you. We got the sense that any amount of money can be the final downpayment. It mostly depends on what you can afford, and what you want.

We put down a little over 20%. That's because we wanted to avoid having to pay for Property Mortgage Insurance (PMI). We were able to use the proceeds from selling our existing home (a condo unit). We noticed some builders at other developments posting signs in their sales office which displayed average "starting costs" (effectively downpayments) that equate to just 3% of the sales price, which perhaps indicated an FHA loan arrangement.

When you make the initial decision to buy, the sales representative will want to know how much you intend to pay for your downpayment. I don't know exactly what goes on behind the scenes, but this part of the process seemed to be very critical. If you tell the representative that you intend to put down 20% or more, this seems to tell him or her that you are very serious and very capable of buying, and thus they seem to treat you pretty well. But the lower you go, the less seriously they seem take you.

Other factors towards this is your income, your job, your background, your intellect, and your intentions. Some of that information is not applicable to buying a home, but the sales representative will just casually get to know you by engaging in friendly discussion. From this, they can determine, or better yet, "predict", if you will be a "good buyer".

The issue is that a lot of buyers end up falling out of the sales process. Sometimes it is their own decision, others it is the builder's decision. Buyers will go so far as to put a deposit down, fill out the paperwork, and even make customization choices, and then sometime in the middle of construction, they fall out of the process. My sense is that the biggest reason is because they can't come up with the downpayment, or they cannot sell their existing home. But there are other reasons. Some buyers simply find a better home elsewhere. We got to know one family who dropped out because they initiated divorce proceedings!

From what we learned, most of our neighbors didn't end up with the lot they initially wanted. They started out intending to buy another lot, but for whatever reason, encountered delays or difficulties through the sales process, and as a result, the builder dropped them from the process, and offered to sell them a different lot. Most of this was due to not being able to sell their existing home in a timely manner.

The builder cannot waste its time dealing with buyers that are unlikely to complete a sale in a timely manner. Everyday in which the builder still owns the property, they are having to pay money, both through taxes and maintaining their presence. The builder wants to transfer title as fast as possible.

That's why it is necessary for the builder to determine, as early as possible, your "ability" to purchase, and the likelihood that you will buy. If they sense that you're going to have problems down the road, then it is to their best interest to dump you as soon as possible.

Next:   Chapter 6 - Contingent Buyers - Selling Your Existing Home

Suggested Links

·  Tips on Buying a Home

·  HUD Homebuying Guide

·  Homebuying Consumer Info Center

·  Real Estate ABC

·  Home Buying Guide.com