FAQs
Did you know that some people do not even consider new construction because they mistakenly think it is automatically more expensive or a more complicated process than buying a resale home?
By excluding new construction from your home search, you may miss out on a chance to own a home that is perfect for you and your family.
Here are answers to some of the most commonly asked questions. Please take the time to review them; we may be able to enlighten you in regard to some of the misconceptions about building a new home.
General Home Buying / Building Questions
Do I build or buy an existing home?
Many buyers choose to build a new home because they cannot find an existing home that has what they really want. Building new allows you to choose the style, size, colors, and specialty features that fit your family.
- Buyers today often want little to no maintenance, energy efficient homes, modern amenities, master bedroom and bath suites, whirlpool tubs, custom showers, fireplaces, theater rooms, chef’s kitchens, and outdoor living spaces.
- Many people purchase new construction because they feel it is the best investment for their money.
When is the best time to build?
The cost of construction continues to go up every year. There is no time like the present to have a new home built. Material costs also continue to rise, so there is no indication that pricing will diminish in the future.
Should I sell my home first?
You do not have to sell first if you have cash or can qualify for your new mortgage without selling your current home. Some buyers start construction while listing their current home, and by the time the new home is complete, their present home may be sold. Financing may also be available without selling first for buyers with a small mortgage and 20% or more to put down.
Which comes first: the lot/site or the floor plan?
It varies from buyer to buyer. If you have a specific style or floor plan in mind, you will want to find a lot that allows you to build it. If lots are limited in your preferred area, the lot may guide which designs work best.
It is best to look at both lots and floor plans. Have your builder inspect a lot before you make an offer. Some lots may need fill or removal work, so you may want a contingency or feasibility study. Many builders offer a free home site evaluation that includes positioning, trees, utilities, and related site considerations.
How do prices vary from builder to builder?
There are many competent builders in the area, and price often reflects what is included. The more customization you choose, the higher the price usually becomes. Compare standard features, allowances, specifications, and what is actually included in each proposal before making your decision.
Lending & Mortgage Questions
When should I apply for a new home loan?
Now. Loan applications can take up to six weeks. A pre-approval helps you know your price range and gives your builder a clear budget to work from.
Are lenders lending on new construction?
Yes. Local and regional lenders have new construction programs, although not every bank offers them. Ask builders which lenders they recommend. Some programs may allow lower down payments, while others may require more down and avoid mortgage insurance.
Can I use my lender from up north?
It is often best to use a lender familiar with local construction, local builders, and the local process. That familiarity can make the transaction smoother.
What can I afford to spend on my new home?
A common rule of thumb is that your mortgage payment should not exceed 25% to 30% of your monthly income. Lenders also review your debt-to-income ratio and often look for it to be below 43%.
What credit score do I need to obtain financing to build my new home?
Minimum credit scores vary by lender and loan program. The original FAQ referenced requirements ranging from 640 to 720. Better credit usually gives you access to better interest rates.
What are the current interest rates available for new construction?
The original FAQ included a historical rate example from 2016. Please speak with a current construction lender for today’s rates, APRs, program terms, and payment estimates.
Rates vary by lender, loan type, credit score, down payment, and market conditions. Construction lenders can help compare options and provide current payment estimates.
How much will I be required to put down when building my new home?
Down payment requirements vary by lender and program, and some banks do not offer construction/permanent loans. Ask your builder which lenders they work with most often. Programs may range from lower down payment options to 20% or more depending on the loan.
I own my lot outright. Will banks give me lot equity toward my down payment?
Yes, most lenders will give you the current appraised value of the land as equity credit toward your down payment requirement. Depending on your equity, this may reduce or eliminate the cash needed at closing.
How does a construction mortgage work?
A construction mortgage is a short-term loan used to finance the building of a home. It is usually required when the buyer owns or is purchasing the lot. The buyer hires the builder and owns the home during construction.
The lender pays the builder in draws as work is completed. During construction, the borrower typically pays interest only on funds that have been disbursed. Once the home is complete, the loan usually converts to principal and interest payments based on the final loan amount, rate, term, and any applicable taxes, insurance, escrow, or mortgage insurance.
Top 10 Reasons To Buy A New Home
Today’s new homes offer more benefits than ever before.
1. Design your dream home your way.
Choose cabinets, countertops, appliances, flooring, bath and kitchen fixtures, lighting, and the options that reflect your personal style.
2. Choose a floor plan and room layout that meets your needs.
Whether you want a first-floor owner’s suite, walk-in closets, high ceilings, a spa bath, a sitting room, fireplace, French doors, private patio, pool, or custom outdoor living area, building new lets you shape the plan around your lifestyle.
3. More space for you.
New homes can include current architectural features such as 9-foot, 10-foot, or cathedral ceilings, expansive closets, and modern kitchens and baths.
4. All new, under warranty.
New homes may include builder warranties and manufacturer warranties on components. With an older home, major replacements such as roofing, appliances, counters, or water heaters may come sooner than expected.
5. Energy cost savings.
New homes are typically more energy efficient than homes built years ago, with features such as improved windows, coatings, insulation, and efficient systems.
6. Comfort and indoor air quality.
New homes are built to current energy standards and codes, combining efficiency with ventilation and filtration for comfort and indoor air quality.
7. Low maintenance.
Today’s homes use modern building products and systems designed to work together and require less routine maintenance.
8. Advanced technology and design.
New homes can be designed for modern appliances, smoke and carbon monoxide detectors, security systems, speakers, media wiring, computer wiring, and home automation.
9. Safety.
New homes include modern electrical standards, garage door safety features, efficient air conditioning systems, and low- or no-VOC product options.
10. That new home feel.
A new home reflects your choices and your memories from day one, without inheriting the wear or problems of a previous owner.
New homes offer the latest in design, style, comfort, and quality. Start shopping now and visit the local home builders showcasing their designs in this year’s Hernando Parade of Homes.
