Choosing to buy a new build home is an incredibly exciting step. However, it’s immediately followed by a more challenging one: figuring out how to finance it. Navigating the ever-shifting landscape of real estate financing can be difficult, but there are plenty of great options for new homebuyers.
How To Finance a New Build Home in 2023
The U.S. housing market’s trajectory in the first half of the year has been significantly influenced by mortgage rates. Elevated rates have chilled the market, as potential buyers are more reluctant due to higher borrowing costs, and current homeowners are hesitant to sell. While analysts project that mortgage rates will stabilize in the latter half of the year, a lack of supply will likely keep subduing the real estate market.
A notable exception to this overall trend is the DFW metroplex, whose real estate market is still vibrant. While buyers might be seeing slightly higher interest rates than a few years back, they’re still relatively low compared to the sky-high rates from decades ago. Additionally, the inventory of new construction homes in new home communities is booming. And the best part? Many builders are rolling out the red carpet with some pretty tempting offers.
Financing a New Build Home: Why New Build Homes Shine Bright
When you opt for a new build home, you can start the process with an earnest money deposit of just 1-3% which is less than a typical down payment. Then, you can get your financing together and continue saving while your new home is being built. Your closing happens when your dream home is at or near completion.
New Build Home Loans: The Inside Scoop
Some builders serving new build home communities have a competitive advantage: they also run their own lending companies. This means they can offer lower rates to those buying new construction homes, passing on savings to buyers.
However, even if a builder doesn’t have this option, they often team up with top-notch lenders to offer new homebuyers creative deals. Here are a few examples.
- Graduated interest rate mortgage offers: Some builders offer graduated interest rates (for example, 3.75% in year one, 4.75% in year two, and 5.75% afterward). Offers like this allow for a lower mortgage payment on the first few years of a loan, enabling a new homebuyer to build a firmer financial foundation even while living in their new home.
- Location-specific incentives: Depending on the neighborhood a buyer is moving into, some builders are able to offer savings on closing costs. These deals are highly location-specific but can incentivize buyers who may otherwise be hesitant.
- Flexible cash incentive offers: Certain lenders offer cash incentives that can be used to buy down interest rates on a mortgage, offset closing costs, or add options/upgrades to a home’s design finishes.
If these options aren’t available to you, there are still several other proven tactics that can help secure the best possible rate:
- Work with a mortgage broker who can access rates from multiple lenders.
- Think about an ARM for a low rate now and plan to refinance later.
- Tweak your loan variables for a better rate. Maybe pay down the rate with points, increase your down payment, or shorten the term.
- Or, switch gears and look at a different loan product (like a HELOC loan, for example).
How to Finance a New Build Home: FAQ’s
These frequently asked questions will give you more information on the process of financing a new build home.
How does financing a new build home work?
Financing a new build home is a bit different from buying an existing one. Typically, you start by putting down an earnest money deposit, which is usually between 1-3% of the home’s price. This holds your spot and gives you more time to save for a bigger down payment. The actual closing, where you finalize your mortgage for the new build, happens when the home is almost ready. It’s a process designed to give you flexibility and peace of mind.
Can I get a home loan with a new job?
Absolutely! While lenders do like to see a stable employment history, a new job isn’t a deal-breaker. What they’ll want to know is if your new job is in the same field as your previous one and if your income is steady or increasing. So, if you’ve just landed a new gig and it’s a step up or a parallel move in your career, you’re still in a good position to get that home loan.
Are home equity loans deductible under the new tax law?
Yes, under the new tax law, the interest on home equity loans is deductible, but with a catch. The funds from the loan must be used to buy, build, or substantially improve the taxpayer’s home that secures the loan. So, if you’re using the loan for home improvements, you’re covered. But if you’re using it for other purposes, like paying off credit card debt, you won’t be able to deduct the interest.
How does a HELOC loan work?
HELOC stands for Home Equity Line of Credit. Think of it like a credit card, but with your home as collateral. You get approved for a certain amount based on the equity in your home. You can borrow up to that limit, pay it back, and borrow again as needed. The interest rate is usually variable, which means it can go up or down. The best part? You only pay interest on the amount you borrow, not the entire credit line.
A HELOC is a flexible way to tap into your home’s value when you need it. Some homeowners shopping for a new home, such as those relocating from out of state, use a HELOC for the down payment on a new home when it’s not convenient to sell their old home before they move.
Dreaming of a New Home? Explore Union Park by Hillwood
If you’re dreaming of homeownership and are looking for new homes in Little Elm, why not make it a new construction home at Union Park by Hillwood? Not only could financing be more wallet-friendly than buying an existing home, but the community offers good schools, top-tier amenities, a prime location, a full monthly schedule of events, activities, and classes hosted by our award-winning Lifestyle Director, and a stunning new home waiting just for you.
Discover the magic of Union Park by Hillwood and explore your new build home financing options with us. Our new construction builders have available homes, and many are offering incentives, so now is a great time to buy!