October 13, 2021

Buying a New Construction Home

new construction, buying a new construction home, custom home, custom home build

Single-family homes have been in high demand for over two years now. And in a perfect storm of events, builders are coming out of the woodwork (pun intended) to meet it. Leaving many people, like yourself, wondering about the ins and outs of buying a new construction home. 

Building Houses Like it’s 2006 

Before we get into the details, let’s take a moment to celebrate that housing inventory is finally increasing! The U.S. Census Bureau’s latest report showed a 17.4% increase of new home starts from August 2020 to August 2021. Moreover, the number of new homes starts every month is shattering 2006 records. Why now?

Times have changed and so have our housing needs. Remote work has become a permanent arrangement for many, thereby eliminating the commute from a list of considerations. So, rather than modifying a 1960’s tract home near the city to suit your modern life, home builders are proposing you venture just a little further. Consider buying a new construction home with ample outdoor living space, easy-to-clean surfaces, two office nooks, and maybe even a schoolroom. 

Buyer Beware & Prepared 

Before you start picking out fixtures and paint colors, we cannot stress enough the importance of a pre-approval. First, knowing for certain what you can afford makes the search more fun. Secondly, having been quoted an interest rate and issued a pre-approval, you have a layer of protection against potential “gimmicks” the in-house financing team may try to offer. Our mortgage experts always encourage borrowers to shop for rates. Just keep in mind that many lenders include discount points in their quoted rate, which would cost you thousands of dollars upfront. (Read more about points here). In short, walking into a model home with a -0- points pre-approval in hand is always a good idea.   

What is the timeline? 

To make a mortgage you need a few basic things: property address, personal information, and an interest rate. In an existing home purchase scenario, the mortgage banker locks the interest rate as soon as the sales contract is in hand, given the borrower was already pre-approved. This is not the case when buying a new construction home because rate locks expire. Let’s say there is a nine-month window between the date of your sales contract and the closing date… 

Long Term Rate Locks. There are 3, 6, and 9-month rate lock terms that allow new construction buyers to secure an interest rate early in the process. Nobody can say for sure how rates will behave over an extended period. So, a long-term lock gives you peace of mind that you are protected in the case of dramatic hikes. 

How much does it cost? To secure a long-term lock there is typically a fee equal to 1% of the loan amount. This comes in the form of an interest rate that is slightly higher than market rates at the time. For most people, the fee is worth the peace of mind. 

What if rates go down after I have locked? If rates fall below what you had locked, you are able to negotiate a lower rate. So not only are you protected if rates go up, but you are also able to take advantage of a better rate if rates go down within 30 days of closing.

The Buyer’s Seat

Inventory may be increasing, but sales are happening at record speeds due to still historically low rates, which are expected to continue into the foreseeable future. If you are interested in buying a new construction home, talk to a real-life mortgage expert today. 

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