BUILDING A NEW BUILD OR CONSTRUCTION FINANCING
You can finance a new build.
What if, in the process of looking for a home to buy, you just can’t find something that meets your needs? Or what if you just don’t want the potential hassle of having to deal with the maintenance of an older house? You may want to look at buying something that doesn’t exist yet by doing it yourself, or buying a new build. It is possible to finance these two approaches to finally having your dream home, though the path is a little different from the norm.
If you’re considering building a home yourself, then you’ll want to look at something called construction financing. You still put a down payment on the property, the same as with a traditional mortgage, however the final value of the property includes the house you intend to build on it. For example, you may purchase bare land for $200,000 and want to put a house that costs $100,000 on that lot. The final value is then calculated as $300,000 (which would require a minimum down payment of $15,000). The lender will want to see your plans and contracts for the house, so you need to be well prepared in advance before finalizing a purchase. The funds are typically advanced in “draws” tied to the stages of construction, with periodic inspections to confirm that the work is proceeding as expected. The payments are usually interest only on the amount already advanced, with a conversion to a normal mortgage term once construction is complete. Every lender has its own policies, however, so your broker can help you figure out which direction to go.
Brand new homes can be quite attractive also, especially when there are incentives offered by the developer. There are a couple of things to keep in mind here. If there are any bonuses offered, such as cash back, the lender will deduct that amount from the price of the property. This can mean that you have to have a little more money to put down than you would otherwise, since you’re still paying one price for the property, but the lender is financing a lower amount.
Another consideration is that new homes come with sales tax, like any new purchase. The tax amount is usually added on to the price of the property, and then is included in the financing. Depending on when you buy a new home, or how far in advance of completion you put in your offer, you may or may not be able to arrange the financing.
Some lenders offer long-term rate holds for new builds, though the rates are not likely to be competitive. Your best bet if you’re considering buying something brand new (especially if it hasn’t been finished yet) is to have a conversation with your broker to qualify you ahead of time, and then decide on the timing for getting the financing approved.
Both of these options involve looking at mortgage financing over a long term before it’s finalized. Because of this, it becomes even more important to keep your finances stable while you’re going through this process.
It’s not a good idea, for example, to suddenly change careers midway through, or to make a large purchase like a new vehicle, between getting pre-approved and making a purchase. These changes can affect how much you qualify for and put your ability to obtain the right financing into question.
Buying a brand new home, or having one built to your exact specifications can both be great ways to get the home that you really want, but these both require careful planning, so it’s a good idea to talk to your broker in advance to work out a plan.