How to Buy a Home that Doesn’t Exist (Yet)

Welcome to the Spring Preview of Homes! Dwell Realty is honored to have 12 of the 28 entries which makes us at the epicenter of knowledge for buying and selling new homes. Last year there were only 193 single family homes built in Anchorage and for the first quarter of this year only 26 homes have been permitted so enjoy the new trends and amenities when visiting these new homes and be sure to thank all the builders for their continued commitment to bring new homes to the Anchorage marketplace.

With such a limited number of homes being built, many new home buyers are exploring the idea of having a home built. The exciting part of buying a ‘to be built’ home is you get to select the lot, the floor plan and all of the interior amenities, including wall color, flooring, cabinets, appliances, lighting, et cetera.  

But for some, who have never been through the process, the idea is daunting so here is some information that will help you. Step one is to select your location. Many of Anchorage’s new subdivisions are ‘locked down’. In other words, they are owned by the builder or have a commitment from the developer that only certain builders can build in the subdivision. Anchorage has a severe shortage of residential lots and so this exclusivity will continue for the foreseeable future. It’s a common business arrangement in the lower 48 so local buyers need to take it in stride.

The most frequently asked buyer question is what is my financial responsibility. Probably 90% of all new homes built on a presale (when the builder has a buyer commitment as opposed to a speculative build) are financed by the builder. The buyer’s responsibility is to provide a 90% letter from a mortgage lender which states after a review of their credit score, income verification and debt to income ratio that the buyer is approved for the desired mortgage amount and has funds available to close. It will also state whether the loan approval is contingent upon the sale of the buyer’s current residence. Each builder reacts differently to an offer with a contingency. Some will want a larger notice to proceed amount; others will want the buyer to pay their interest, taxes and utilities until they are ready to close on the home. Notice to proceed funds vary from 2-10%, which depends on the price point and how comfortable the builder is with the plan and buyer selections. Notice to proceed funds are non-refundable and disbursed directly to the builder to be used for permit fees, plans, appraisals, et cetera. The buyer receives credit for the notice to proceed funds at closing as part of the down payment and/or closing costs.      

Almost always the builder takes out the construction loan. He has a line of credit with a local lender that covers the lot purchase and 75% of the cost of the home to be built based upon a construction appraisal. The other financing option which occurs most frequently in the one million dollar plus market is for the buyer to take out the construction loan and then the builder receives a negotiated percentage of costs on a monthly basis at the time of the construction draw is approved by the owner and the buyer’s lender. In either situation, a fixed bid with an approved plan and allowances needs to be part of the purchase and sale agreement. Then, extras and upgrades are paid for in cash prior to ordering and installing by the builder.