Are you serious about buying a home — preferably a new one? There are some things to know about how to finance a new home build. Let’s dig in.
Start With a Review of Your Finances
You have to know how much home you can afford, and the first step in determining that is knowing your credit score. Generally, the higher your credit score, the lower your interest rate. The minimum score to qualify for most loans is typically 620. You can get by with a lower credit score for an FHA loan — you’ll only need a score of 500 if you have a 10 percent down payment.
Don’t have at least a 500 credit score or are worried how a low score might increase your interest rate? Spend some time improving that score by paying down credit card balances, reviewing your report correcting errors, and more. Make sure to pay bills on time and don’t open any new lines of credit while you’re trying to raise your score.
The next step in determining how much home you can afford is to get an idea of what your mortgage payment might be. Of course, there are variables beyond interest rate, such as how much down payment you put on a home. Then there is your monthly escrow payment that is added to your principal and interest payment. This is the amount that goes toward your insurance and taxes that are paid annually. Some online calculators can tell you a monthly principal and interest payment — play with how many years you’ll have the loan, down payment, and interest. A builder’s sales representative should have information on estimated taxes, and you can speak with your insurance agent regarding insurance. All of this information will give you a fairly accurate estimate of your monthly mortgage payment and begin to show you how to finance a new home build.
There is More Than One Type of Loan
The type of loan you select has an impact on how much down payment you need and what your interest rate might be. There are four basic loans when financing a new build home:
FHA Loans
Offered through the Federal Housing Administration, FHA loans allow down payments as low as 3.5 percent and have more lenient credit requirements. Plus, FHA loans often have better-fixed interest rates than other types of loans. Adjustable-rate mortgages — where the interest rate can fluctuate depending on the market — are also available. The downside of FHA loans is that you’ll have to pay an upfront mortgage insurance premium and an annual mortgage insurance premium. There are also some property requirements and loan limits.
VA Loans
If you’re a veteran, you can qualify for a loan guaranteed by the U.S. Department of Veterans Affairs. These loans have significant advantages — including no required down payment or mortgage insurance. They often have lower interest rates and you can qualify relatively easily. There is a required funding fee at closing, but this can be financed into your loan.
USDA Loans
If you meet certain income requirements, a USDA loan could be a good option. These loans don’t require a down payment and are lenient regarding credit scores. Interest rates are often lower and closing costs can be rolled into the loan. You will have to pay an upfront and annual guarantee fee, but these can be rolled into your monthly mortgage payment. Some homes might not qualify for a USDA loan, so be sure to ask your builder sales representative or loan officer.
Conventional Loans
If you have a good credit score and money for a down payment, a conventional loan will give you plenty of options and a higher loan limit, if needed. Among these options, is a down payment that could be as little as 3 percent and there is typically less red tape when it comes to qualifying for this type of loan. Because there are so many variables with a conventional loan, it’s important to talk to a loan professional.
Builder Incentives Can Help
Most of what’s mentioned above is universal when buying any home — new or resale. What’s exclusive to purchasing and financing a new build home are builder incentives. Often these incentives can save you money on financing, by either giving you money toward closing costs, helping you lock in an interest rate, or — perhaps one of the most popular incentives right now — buying down your interest rate one or two percentage points. Other incentives could include purchase price discounts and savings on options or upgrades at the builder design center. Most incentives are for a limited time only, so make sure to speak with your builder sales representative about the details of each incentive and how to finance a new home build.
Shopping for Homes in Santa Rita Ranch
Like there are many loan options available to new home buyers, there are many options in the types and prices of homes available in Santa Rita Ranch. Home prices start in the upper $300,000s and extend to more than $1 million, offering floor plans by 12 award-winning builders for every stage of life, from first-time home buyers to families to 55+ active adults. Search online to see what’s available now!
