We have another meeting with them this week as well! We are going the Va Loan route so every mortgage officer we talk to seems to be confused by the fact that the builder carries the loan. So that hasn't been helpful, hoping to get more clarity soon!

My guess is that the best you can do is pre approval. Conversely - you could ASK about an extended rate lock if you wish. It's costly - but you do get a formal approval AND a rate lock, with a simple update prior to closing. I've seen rate locks up to one year.

(all of this is NON-VA - so may / may not apply)

Is this on land you already own?

Have you had the contract vetted by a lawyer?

Does the builder offer a monetary guarantee if he fails to build within the specified time period?

We do not own the land yet, and we have not made a formal contract yet, I believe this is the next step but was unsure if I would need to take anything from the bank to get that far!

The Loan Officers shouldn't be confused, all you need is a VA end loan for when the construction is completed.

It sounds like this is a circumstance similar to the one that I looked into where the builder would own the land. If so you should be looking to the contractor and the builder to explain the process. You may be initiating the financing now, be it a pre-approval or something else, and you may be essentially paying your down payment to the builder now in the form of a earnest money. You will then go through the actual financing and closing process as the construction draws to a close, Note however as a caution if you pay your earnest money, start construction then fail to qualify for the mortgage to close on the completed home, you may lose the house and the earnest money that you paid.

Too that point, don't purchase any cars, take on any new debt, or do anything that would significantly change your debt to income ratio between the time that you are pre-approved and you close on the house.

You are purchasing a home using a VA mortgage.

Most builders who sell homes at completion "carry the loan" one way or another.

You may want to consult with a real estate attorney. If the builder owns the land and is carrying the construction loan, you have little legal input in the building process - unless you sign a contract that specifies the rights and obligations of the parties during and when construction is completed. If that contract is the builder’s standard contract, you need to fully understand the terms and conditions. It is most likely drafted to be in the builder’s favor, not yours. If you are counting on the current quoted price before construction being the same price when construction is completed, you really need to fully understand the contract. The model home you see is only what you get if that is what the contract requires. Once you sign on the dotted line the contract controls, not the model or the builder’s oral representations.

What your builder is proposing is fairly common. You'll likely enter into a contract to purchase the home with a deferred closing--at completion of construction. If you want to finance the home with a VA loan you will be well served to check with the builder and see if he/she is okay with that. VA loans are a paperwork burden for the builder and require them to commit to build the home to VA standards and to conduct their business in a particular way and to force all their subcontractors to do the same. It's onerous.

The issues that will arise will be from the VA portion of the loan. Get those requirements out front first thing so that it won’t torpedo things at the last minute.

The other issue that will arise is the one if control. You won’t control the job site or the process. This is where your construction lawyer earns their fee. You want to still end up with the result that your architect envisioned, and not with a home not built to plans, or with the home not getting sold to you. Both of those things can happen without the proper contract.

One of the first things to do when a builder proposes to finance a home project is to visit with an attorney to learn how to protect one's rights and to understand important conditions for the construction contract .

I might have missed something, but I didn't see any information to conclude this was to be a custom home with the OP engaging an architect and furnishing the plans to the builder. It could be that or it might be a standard builder's model home with some changes. That makes a big difference in the process and the risk to all parties--client, builder, and lender.

Builders have a strong preference for "pre-sold" homes and will generally accommodate reasonable requests in exchange for the client's up-front purchase commitment. It shouldn't be an adversarial process.

It expedites the process if the builder already owns the land and deals with their commercial lender, who, like the builder, has a strong preference for pre-sold homes versus homes built on speculation.

Years ago I purchased two builder spec homes which were in the drywall phase. I was allowed to "personalize" each--e.g., to pick paint colors, carpet, cabinetry, appliances and lighting subject to the builder's budget for each of those items. The builders had good reputations, built great homes and the process was pretty straightforward. I didn't find the need to "lawyer up."

Charles, I'll go out on a limb and make a wild guess: you fully understood the relationship, as well as the term and conditions of the situation.

Many consumers have no idea, as posts in this forum illustrate.

The majority of new homes are actually sold where the builder carries the loan and the buyer purchases turn key at the end, happens all the time. it’s the minority that build on their own lot with their own construction loan. This is houzz though, and “lawyer up” is the specialty. I think I remember a saying along the lines if you are looking for a fight, a fight you are bound to find.

I don't think anyone here is saying to pick a fight with the builder. Hiring a lawyer is not a means to threaten the builder, but to protect the purchaser. They are saying that it is to the posters benefit to have a lawyer review the contract so that they understand what the terms are, what protections they may have, or if anything needs to be negotiated. I've read some of these contracts, and since the builder writes them, they typically favor the builder. The builder most definitely has an attorney, it's the buyer's prerogative to have one as well.

Sorry...but there's nothing in this posting about looking "for a fight".

This thread is in response to the OP's postings "what to do first" in a situation that they are unfamiliar with.

And as we have seen here, repeatedly, few consumers fully understand the situation when buying a house to be financed and built by a builder.

We didn’t get pre-approved for the exact reason you pointed out - I wanted to avoid an unnecessary hard credit check. We did; however, initiate discussions with a recommended mortgage broker to vet our plans (i.e. expected sale price, amount of earnest money payment, combined income, assets) and to make sure we understood what the process would look like at closing. Then we entered into a purchase agreement and put down our earnest money. This helped the seller obtain a better loan rate since the house was pre-sold, and will ultimately convert to our mortgage down payment.

Generally speaking, if you know your financial history, income, and what the anticipated mortgage will be (I’d include a 30% contingency over base price), you should know whether you might face approval issues. We kept our max possible sale price well below what we should quality for, so the only concern now is whether the house will appraise! (Not really concerned, we’ve vetted and planned for this to the extent possible). I’m a fan of credit monitoring apps if you aren’t on them already. I would also recommend having an attorney review the purchase agreement as others have said. I would have hired one if I weren’t an attorney myself, or otherwise well versed in the custom build process (the terms “allowances” and “changes orders” might as well have been Greek to me before this adventure!).

One problem with a mortgage separate from the builder’s construction carry comes at the end, when the house won’t appraise for what it costs to build. That happens frequently with custom, but less frequently in cookie cutter subdivisions. Most controlled locale builds don't have a wide variance in the amenities and upgrades. You occasionally get someone who wants all the luxuries, and goes nuts. In a 500K neighborhood, if you put 200K worth of upgrades in, you’ll be lucky to get it appraised for 540-560K. That extra has to come out of your pocket.

GreenDesigns, in the particular situation we looked into, the builder's contract made it clear that financing would be based off of the initial contract design and base selections, and that any adds or changes would be paid out of pocket which would avoid most post-construction appraisal discrepancies and surprises.

The majority of new homes are actually sold where the builder carries the loan and the buyer purchases turn key at the end, happens all the time. it’s the minority that build on their own lot with their own construction loan. This is houzz though, and “lawyer up” is the specialty. I think I remember a saying along the lines if you are looking for a fight, a fight you are bound to find.

My DH is a lawyer and even he insisted we have a real estate lawyer read over our contract.

Post the contract here and we can offer opinions.

Post anything and we can offer opinions...

Have any of you ever had a successful contract negotiation with a tract or production builder?

I ask because I have never seen it. I am not saying they don't exist, just that I haven't seen one. I can tell you that one time I had an attorney rewrite a rental agreement in favor of the tenants, I adjusted the rent price significantly and sent it back, they chose to keep looking...

I am not saying an attorney is a bad idea, but I suspect the value is mostly so you are aware of the risks going into the deal. I personally wouldn't sign a deal without at least a base price appraisal contingency. That is probably the only thing I am not flexible on.

Post anything and we can offer opinions...

Jeffrey we offer opinions even when nothing is posted!

I am not saying an attorney is a bad idea, but I suspect the value is mostly so you are aware of the risks going into the deal.

Exactly! How many peeps have come into this forum asking after the fact about some issue that's already spelled out in their contract.