New construction homes offer brand new spaces and oftentimes customizable features. Similar to buying a resale home, new construction homes will require prospective homeowners to research financing rates and terms from mortgage companies, banks, and online lenders. While there will not be previous owners to influence the purchasing process, another variable can arise: the builder. Builders may offer financing packages through mortgage subsidiaries or affiliates.
Due to the fact that purchasing a new construction home is an involved process, it may be difficult for prospective homeowners to navigate financing for the first time. Here are important preparations buyers will need to take into account when financing a new construction home.
Order Credit Information
Prior to home shopping, buyers will need to order national credit files and ensure all information is up-to-date and accurate. Lenders will require income, employment, bank accounts, and other asset documentation. In addition to this information, it’s helpful to have an estimate of current household expenses, as it will influence the maximum price that can be spent on the financed house and the amount of mortgage buyers can obtain.
It’s advised buyers determine how much they can afford on a home prior to purchasing. Buyers can do this by checking calculators provided on lender and builder websites. As affordability varies depending on what algorithms and automated underwriting models different lenders use, buyers should experiment with different rates, down payment amounts, and various terms to determine the possibilities.
There is a myriad of loan options for prospective homebuyers. Here are some options:
Federal Housing Administration (FHA) loans are government-backed loans most helpful for homebuyers with credit blemishes and minimal amounts of cash to put toward a down payment. With FHA loans, generous credit underwriting and down payments as low as 3.5 percent are allowed.
VA loans, while requiring no down payment, are limited to veterans.
Conventional loans after often the best choice for those with more than 10 or 20 percent to put down. Unfortunately, conventional underwriting rules with these loans are strict, which may cause banks to impose additional fees.
Look into Builder Financing
Medium- and large-sized builders often have mortgage subsidiaries or affiliate relationships with outside companies. In these cases, builders are able to offer a variety of financial options. Qualified buyers should consider these financial packages, but also look into other mortgage servicing companies. While builder’s financing may reduce the processing time of an application and save buyers money with the bundle of incentives, builder’s mortgage rates might not be the best deal available in the marketplace.
When it comes to financing a new construction home, research proves especially crucial. It’s important prospective buyers are aware of how much they can afford and what financing options best suit their needs.