On October 3rd I will be closing on a new construction condo. The process for purchasing a new construction condo was a very long and informative one. I began looking into purchasing a home in November of 2007 and will complete the transaction in October 2008, almost a full-year later. I will attempt to describe the path that I took in purchasing my condo.
House, Townhouse or Condo
The first decision was what type of home I wanted to purchase. I’ve been through too many terrible winters to want to own a house. I have no interest in shoveling snow or mowing the lawn, which meant I was looking at condos or townhouses. Townhouses were significantly more expensive. In the end, my decision to purchase a condo was pretty simple.
I started by researching condos in suburban cities that were revitalizing the downtown area as a Transit-Oriented Development (TOD). I was looking to purchase a condo where I could experience a growing urban community around a train station for easy access to a nearby urban city. There were a lot of personal benefits with the local community in terms of running trails, biking trails, train station and nightlife, but the major goal was to buy a condo that was going to increase in value in the next few years. With the planned development and local attractions, I am confident I will make a good profit on the resale of my condo.
New Construction Condo
Since I was looking at at this purchase as an investment opportunity, I looked into both used and new construction condos to try to find the best deal possible. I decided on a new construction condo because it would give me enough time to save up for a down payment and I was able to get a really good discount.
The builder had a deal with the bank that when a certain number of condos are sold they are approved for loans necessary to begin building. In early January I agreed to purchase a condo and received $12,500.00 off the price of the condo as an incentive. The builder also agreed to credit a full year’s worth of assessments ($3,191.04) at closing, which can be applied toward my down payment or closing costs.
Once I decided on my building I had to pick a floor plan. I decided that I wanted a 2 bed 2 bath unit for resale purposes. Additionally, with a second bedroom and bath I can have a roommate and potentially supplement my income. I took a list of all two bed two bath floor plans and divided the purchase price by the square footage. I eliminated the units that would make me house poor and selected the lowest price per square footage of the remaining units, which conveniently had the best “flow” according to my Mom.
When I agreed to purchase my condo I had to put down 5% of the cost of the condo as an earnest payment. In my monthly financial status updates I list this earnest money as an asset. The earnest money acts as a good faith placeholder that I will not back out of my pending condo purchase. If I were to back out of purchasing my condo, I would forfeit the earnest money. I have previously written about my adventure with the CFO over the measly 0.5% interest rate my earnest money is earning.
The Lender Search and Pre-Approval
Immediately prior to agreeing to purchase my condo, I began my search for a lender. I wanted to get pre-approved for a mortgage before attempting to haggle over the final purchase price of my condo. I highly recommend getting pre-approved for a mortgage before signing anything as the builder said the fact I was pre-approved made them up the offer a little. My search for a lender was very short and quick. I took a business card from the sales office and found the man on the other end of the phone to be reasonable and helpful. Looking back I probably should have looked around for a better offer, but I doubt I could have done much better, especially since he has been so instrumental in my understanding of the process.
Signing the Contract
After signing my contract with the builder, I had to sign my contract with the lender within two weeks. It was a pretty painless experience. The lender asks for your banking information and how much you are planning on putting down as a down payment. They want to know how you are going to come up with your target down payment if you don’t currently have the full amount. They perform a hard credit pull and show you your credit score and report. You pretty much just verify a bunch of information and sign away your soul, I mean sign a bunch of papers after which your lender disappears until a month before you close.
Upgrades and Selections
In early February, I made my first selections for upgrades, which begain with the location of cable jacks and outlets. I made my final selections on upgrades and features in late August. I have previously written about my upgrade selections to maximize my resale value, while still enjoying my living experience. Throughout the selection process it’s also fun to drive by and watch as the building is erected and curse at the weather if it prevents them from working on your building.
Last weekend (September 6th) I was able to enter the building for the first time. The sales office is now located in the building. The parking garage, lobby and 6 models were open, which was nice to see. I was not able to go into my unit as my floor hall was still under construction. I was able to walk into a similar floor plan for a unit that had the same closing date as mine. I close in 3.5 weeks and it was amazing to see that the only flooring that was laid was the tiling in the bathrooms. The cabinets were also up, but the counter tops were not and there were no appliances or lights yet. It’s amazing how quickly they can finish the units when pressed hard.
About a month and a half prior to my closing date I was told of the exact dates for closing and my walk-thru. My walk-thru is October 1st with the closing date on October 3rd. After finalizing the closing date I contacted my lender. He set a cap on my interest rate of 6.5%. Once I hit the 30-day prior to closing mark I was able to lock in a rate if it dipped below the capped rate, but I can re-lock the rate only once. Currently the rate is at 6.0%, which I am most likely going to lock in for a 30-day 30-year fixed rate mortgage.
As of now I am patiently awaiting the closing date, which is also my moving date. I still have to switch ComEd over to my name and purchase insurance before I move, but otherwise I am just playing the waiting game.