what happens to my down payment to builder if my home doesn’t sale?

A question by :  We have decided to obtain funds from my 401k to put down to have a home built. The down payment required by builder is $15,000. This contract will have to be contingent on sale of current home. So, i builder begins construction while my current home is on the market and then mine does not sell, what happens to the down payment we give to builder??


Provide a response using the comment section. After review we will update the answers.

Given that the down payment is the difference between the purchase price and the mortgage amount, including buyer’s closing expenses, I assume that the money you handed the builder was a “deposit” rather than a down payment. I’ll answer that question as I’m assuming it was a deposit. By paying a deposit, you can ensure that the house is reserved just for you and not sold to another else.

When you put down a deposit on this new home, you must read documents you signed. Normally, a buyer’s deposit is returned if he is unable to secure the appropriate financing for the purchase.


“I would be nervous to straddle two loans in this market. I would not start building until I sold the other home. After selling I would move into an apartment on a 6-month lease and go month-to-month at the end of that if necessary, and put into a storage place anything I could not fit in the apartment. It will be a “challenging” period, but you will sleep better knowing you are not spread too thinly.”


“Depending on how the contingency is stated in the contract, you probably get it back. You do realize that with a 401K, unless you take it out as a loan AND PAY IT BACK AS SCHEDULED, it’s not only taxable income to you, but you also pay a 10% penalty? The penalty exemption for a down payment applies only to IRAs, not to 401Ks.”


“for the most part like a Deposit, a Down Payment is forfeit if the contract is not completed. The Down Payment is usually the minimum cost of the materials used to start the job. Sometimes it is the commission of the agent who handles the startup of the job. Have a lawyer (yours) look over the deal. {You would not work for your employer and then give back your wages if the his product is not selling…

Taking money from a 401k is never a good Idea, and should only be considered if it is an Emergency.”


“You will need to review the purchase agreement very carefully since it will be drafted in favor of the builder, while it may have a contingency, the contingency maybe limited in scope, depending on certain factors”


“There is no way a BUILDER is going to accept a contingency like that. he’s taking all the risk and if you have to borrow $15k from your 401k, then you are not ready to build a new house”


“As long as you have the appropriate contingency in the contract, you get your earnest money back.

You don’t get back any non-refundable expenses such as mortgage loan application, rate lock, appraisal, inspection, etc.”


By Alexandre Laurent

Alexandre Laurentl is working in the jewelry and investment gold since 2002. Alexandre graduated from The Normandy School of Business and from the University of Perpignan a Bachelor of economics in 1995.

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