When Do You Start Paying Mortgage On A New Build

When do you start paying a mortgage on a new build? The mortgage process on new builds is a little different than when you buy an existing home. Mortgage lenders are also different so it will depend on your specific contract with them.

Most lenders take the first mortgage payment a month after completion but some lenders use a specific day of the month and therefore it can vary by over 3 weeks. You will usually pay your exchange deposit on the exchange of contracts but there are other considerations and payments in these circumstances.

This article will give you some advice in relation to these.

What Is The First Payment I’ll Have To Make?

With a new build, in most cases, you will have to pay a reservation fee when you make your offer. This enable you to ‘reserve’ your property for an agreed period – usually a month or two. The fee for this is varied but is usually not more than £2,000 unless the property price is very high or demand on the properties, allows the builders to ask for more. This then allows time to facilitate the exchange of contracts. This fee should be included in the final purchase price of the property.

What Else Will I Need To Start With?

You will need to have your mortgage or finances all in place for the purchase of most new homes in order to satisfy your developer to accept your deposit.

The Consumer Code For New Home Buyers

The Consumer Code for New Home Buyers gives information on their rights and what they should expect when buying a new build home. It is an invaluable link if you are considering buying a new home and what you should expect.

This document details, for example, what should appear in the reservation agreement – a document you should receive and review before paying your reservation fee.

Conveyancing Solicitor

It is essential you find a good conveyancing solicitor for the purchase of your new home. New home purchases are more complex – as the home isn’t completed and more issues can arise as that happens.

It is advisable that you instruct a conveyancing solicitor before or, if not, as soon as you have paid your reservation fee and received the Reservation Agreement. This will allow them to start investigating the property, the development site and the builder.

The more information they can get at this stage, the better placed they are to protect your interests going forward and also, the longer they have to do this, the more chance they have of uncovering any potential problems.

How Much Will The Deposit Be?

Your lender will probably require a down payment of 15% but this is often more for a new build flat, which is often more like 25%.

Once you’ve closed on the home, you’ll start making monthly mortgage payments. Typically, your first mortgage payment will be due one month after your closing date.

In most cases, you will start making mortgage payments once the home is completed and you have moved in. However, there are some cases where you may be able to start making mortgage payments before you move in. This depends on the terms of your agreement with the builder, so it is important to read through all of the documentation carefully.

If you are not sure when you should start making mortgage payments on your new build, it is best to speak to your lender or a mortgage/financial advisor if you haven’t yet got one. They will be able to help you understand your specific situation and provide advice on the best way to proceed.

How Is The Deposit Paid?

Your mortgage and legal advisor will support you to ensure payments are made to the correct person at the correct time. Payments are made to the developer’s solicitor.

Why Do Lenders View New Build Mortgages As ‘Riskier’?

New build mortgages are riskier to lenders as you usually pay a premium to buy a new build. This means that by the time you are ready to move in, your property may not be worth what you paid for it. This lowers the collateral value you have with your lender.

What If There Are Delays?

If there are delays in the build process, your mortgage lender may agree to release funds in stages (called ‘drawdowns’), as and when agreed milestones in the build process have been reached. This will be detailed in your mortgage offer.

Remember that most mortgage offers are only valid for about 6 months so there may be issues with your lender if the build is taking a longer period to complete.

What If I Want To Sell Or Re-mortgage Before Completion?

If you want to sell your new build home before it is completed, you will need to check the terms of your contract with the builder. In most cases, you will be able to sell your property on the open market. However, some builders may require you to sell the property through their own sales process.

If you want to remortgage your property before it is completed, you will need to speak to your mortgage lender to see if this is possible. In most cases, re-mortgaging is not possible until the property has been completed and you have moved in.

Conclusion

New build homes can be a great option if you are looking to buy a property. However, there are some things you need to be aware of before you make your purchase. It is essential that you find a good conveyancing solicitor who can help protect your interests and give you peace of mind throughout the process.