Personal Finance & Money Asked on December 31, 2020
Let’s say you’re buying a new construction home with a mortgage. I want to understand how the loan amount should be calculated relative to the purchase price. Specifically, is the loan amount a percentage of the total purchase price (which may include earnest money and upgrade deposits)? Or is the loan amount a percentage of the remaining balance (purchase price – (earnest money + paid deposits))?
Assuming from your opening sentence that you are buying a completed (but brand new) home from a builder, the mortgage works like any other mortgage. You and the seller will agree on a sale price. You will (likely) put some money down. The opening balance for your mortgage loan will be the sale price minus the amount you put down.
The only real difference with a newly built home is that builders sometimes play games with buckets of money for various reasons. This can sometimes mean that money is changing hands in a way that isn't as transparent as "sale price minus down payment equals loan balance." This is frequently done when it comes to paying for upgrades compared to the standard design for the home.
For instance, if you have decided on an upgrade (finishing a basement, adding an extra bathroom, adding a deck, so on), the builder may sometimes expect payment for these items outside of the mortgage as if you had hired them as a contractor to do these improvements to a home you already owned. Or they may bake the costs in to the sale price. Or they may do something that is a mix of both. These upgrades sometimes come with their own deposits which are paid directly to the builder before the mortgage closes, and those deposits - or the total cost for the upgrades or the value they add to the home - are not inherently included in the mortgage paperwork.
So, ultimately, you may be buying a home for $200,000 but paying for it in many different ways. For the sake of argument, let's assume the base model sells for $180,000 and you've elected for $20,000 in upgrades, and you're putting $50k in cash into the deal. You could end up in any of the following situations:
Or maybe you'll end up in some other mix of the above scenarios. The key point is: paying for a newly constructed home, including upgrades, can be complex, and the numbers for scenarios that sound similar can shake out in very different ways. It pays to discuss all of this with both your builder and your lender before signing anything or giving any money to anyone, in order to make sure everyone is on the same page. If you're already under contract and money is already changing hands, ask your builder and your lender to explain the numbers and how things will look at closing if you're not already sure. And read your contract yourself to make sure everyone is telling you the full story.
Correct answer by dwizum on December 31, 2020
The loan amount is the sell price discounted the down payment. So, if you are buying a house that cost $100.000 and you give a $10.000 (10%) down payment, the loan must be of $90.000
Given these values, each bank will offer you a different interest rate based on your credit score, the number of payments and other internal criterias that may vary from bank to bank.
Answered by Croves on December 31, 2020
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