New Construction Mortgage Guidelines For Home Buyers
This article covers the new construction mortgage guidelines for home buyers:
Many homebuyers can no longer afford to purchase a new home due to skyrocketing home prices. However, those who are buying new construction homes still have a chance of becoming homeowners. This only holds true if lumber and other building material prices have not skyrocketed due to major inflation. In this article, we will cover the following topics:
- Buying a home in today’s hot booming housing market
- The benefit of new construction homes in a housing market with low inventory
- Pro and cons on new construction versus a home that has been built
- Qualifying for a mortgage on a new construction home
New construction mortgage guidelines make it possible for homebuyers to purchase new construction homes. Homebuyers willing to take the additional task in buying a new construction home, the rewards can outweigh the stress and headaches.
The Booming Housing Market
The housing market is booming with no sign of any correction. Many homebuyers are turning to build a new home. However, the cost of lumber and other building materials has skyrocketed. What this means is the cost of building a new construction home is now very expensive.
Many homebuyers who planned on building a new construction home are now at a standstill due to being over budget. Many are waiting for lumber prices and other building material costs to drop. The economy of the United States has been in chaos since Joe Biden and Kamala Harris has taken office. It seems like the nation has no leadership.
Federal Reserve Chairman Jerome Powell is claiming the nation is under control with inflation. However, that is not what consumers see when they go shopping.
Today’s High Housing Demand and Low Inventory
With real estate inventory low and home values on the rise, many individuals and families are now looking into new construction to buy their next home.
There are advantages and disadvantages to this home buying and mortgage process. Gustan Cho Associates are here to help you and your family with all your mortgage needs. Whether you are buying a pre-existing home or building your dream home, we are experts in the mortgage process.
We have completed numerous new construction mortgages already in the calendar year of 2020. We are a one-stop mortgage shop and are direct lenders with no overlays on government-backed and conventional loans.
In this blog, we will detail some of the pros and cons of buying a new construction home.
Buying New Construction Versus Existing Home
An obvious pro to buying new construction is you do not have to deal with the emotional ties from the previous owner. New Construction Mortgage Guidelines vary dependent on the loan program. One thing with New Construction Mortgage Guidelines is that lenders cannot lock mortgage rates past 60 days.
Many times, a seller thinks their home is worth more than it is. We completely understand how emotions can lead to that conclusion. A house and a home are two different things if you think about it.
We can help make your next house your home! We have been asked the question “is it easier to buy a previously occupied property versus a new-build?”
The short answer is yes. Mainly due to the fact that you usually close within 30 days.
You already know how much the property taxes will be and can adjust your budget accordingly. When building new construction, the process takes way longer than 30 days, usually six months.
During that time a lot can happen out of your control. For example, you can lose your employment taking you out of qualifying. During the building process, the builder may reach out to you and ask you about potential upgrades to the property.
These may or may not be a sales tactic, but there are times where you overextend yourself and no longer qualify due to the increase in payment.
Risks With Buying New Construction Homes
During the six months or so it takes to build the property we cannot predict what will happen with interest rates.
- If rates do rise, you may no longer qualify for that property
It is important to take a conservative approach when building a new home and deal with a SKILLED loan officer.
Pros and Cons in Buying New Construction Homes
There are pros and cons in buying new construction versus existing homes:
- You get a brand-new house
- All brand-new appliances, A MAJOR PLUS
- Usually, come with some sort of warranty
- Most of your neighbors are new to the neighborhood
- Maintenance costs are usually lower due to upgraded technology throughout the home such as high-efficiency windows
- Many new construction homes are in a cookie-cutter neighborhood, built with less yard acreage
- May have to wait several years before landscaping features take a form such as trees throughout the neighborhood
- Many new construction neighborhoods are further from a downtown area, must consider your commute times
- Many newer neighborhoods have homeowner association dues that will add up over time
- Some have strict rules for gardening, decorations, and parking
Pulling the Trigger to Proceed With Buying New Construction Home
Now that you have had time to weigh out the pros and cons for your family, it is time to make a decision. If you decide to go the new construction route, here are a few pointers we have for you:
- Get the home inspected
- This holds true even though the home is brand-spanking-new, that does not mean the builder did everything to your standards
- It is important to bring outa trained professionals to complete a home inspection prior to closing on the property
- Relying on your walk-through and appraisal is simply not enough
This is a long-term investment and you want to make sure everything is on the up-and-up.
Cost of Upgrades Can Add Up
Make sure you understand every and all upgraded features.
- Many times, when you walk through a model home, the price you’re thinking in your head is not the price of that model home
- They usually have upgraded appliances and window treatments to be more visually appealing
The same concept as a car dealership putting a higher-end model inside their showrooms.
Builders Steering Home Buyers To Their Preferred Lenders
Be leery of the “builder’s lender”. Many builders steer home buyers to their preferred lenders. Kickbacks are illegal but still exist. Many builders will charge an enormous monthly desk fee to a lender such as $10,000 and up per month. In return, the builder will steer their home buyers.
We receive phone calls about using the preferred lender of the builder almost every day. This is because they offer incentives to use that lender. We have all heard the expression “nothing in this world is free”.
Please keep that in mind when selecting a lender. While the incentives may be attractive, they may be associated with a higher interest rate. More often than not, the builder’s lender has a financial relationship with the builder. This way they get us a profit on both sides of the transaction.
They will tell you the incentives are only good if you use that lender, but we encourage you to challenge that. Gustan Cho Associates have closed new construction deals where we were still able to use the same incentives. Don’t be afraid to ask questions.
It is important to know that you are allowed to negotiate with the builder just as if they were a seller on a previously built home.
Smart Shopping With Builder’s Upgrades Versus True Costs
One more tip, be cautious about the upgrade you choose.
Upgrades are pure profit for the builder. Make sure you negotiate and ask for invoice pricing. There is a lot of markup in upgraded appliances, it may be cheaper to buy them on your own. If you choose too many upgrades, we need to make sure the house will still appraise for the value needed.
Already in 2021, we have lost new construction deals based on the appraised value. Our client selected almost every upgrade available. When it came time for the appraisal, there were not any comparable homes in the neighborhood.
The builder then was stuck with an overpriced home and could not come down in price to make the deal work. Unfortunate for the builder, but more unfortunate for our client. While they did get their earnest money returned, they were still out the price of a home inspection and an appraisal.
Over $800 for this Texas property. Be cautious when choosing upgrades that will not increase the value of the property.
Qualifying For New Construction Loan with a Lender With No Overlays
As stated above we are here to help you whether you choose new construction or a previously occupied property. Gustan Cho Associates are available 7 days a week to help with your mortgage needs. We are highly skilled in new construction mortgage lending.
We know questions will come up throughout the process, so we are here to guide you. Please reach out to Mike Gracz on 630-659-7644 or text us for a faster response. Or send your question to [email protected]. We look forward to helping home buyers qualify and understand New Construction Mortgage Guidelines.
Gustan Cho Associates is a lender with no lender overlays on government and conventional loans. We just follows new construction mortgage guidelines and have no lender overlays.