Straight Purchase
Definition and meaning of Straight Purchase in real estate.
Straight purchase is a real estate transaction in which a buyer pays a builder a deposit to start constructing a home, with the remaining balance due in full upon closing.
In more detail
Unlike a construction-to-permanent loan where the buyer takes out a loan to pay the builder in phases, the builder self-finances the construction in a straight purchase. The buyer only needs to secure a standard mortgage or cash at the end of the project. This arrangement is highly common in tract housing and semi-custom home builds.
For the buyer, it simplifies the financing process because they do not have to manage multiple construction draws or pay interest during the build phase.
Key facts
| Category | Buying & Selling |
|---|---|
| Required upfront | Initial earnest money or builder deposit |
| Financing structure | Builder finances construction, buyer pays at completion |
| Commonly used in | New construction and subdivision developments |
The buyers signed a straight purchase contract for a new townhouse, paying a standard deposit upfront and arranging a traditional mortgage to pay the balance at closing.
Frequently asked questions
What happens if the buyer defaults on a straight purchase?
If the buyer cannot close on the home when construction is finished, the builder typically retains the initial deposit and may sue for damages depending on the contract terms.
Who pays for construction cost overruns in a straight purchase?
Typically, the builder is responsible for construction cost increases, unless the buyer requests upgrades or changes that are not covered under the original purchase agreement.