New Home Financing FAQ’s- Loans, Mortgages, Interest Rates and Payments

Financing a new home purchase can be confusing, especially during times of uncertainty. Keystone Custom Homes’ Regional Sales Manager, Rob Bowersox, is joined by Brandy Traber of Finance of America and Shelly Burkholder of Residential Mortgage Services to discuss the 7 most frequently asked questions about new home financing!

Discover the videos below that cover topics from current home mortgage rates, home building loans, and getting a loan to build a house.

Is 4% a good mortgage rate?

Rob: Is 4% a good mortgage rate? Brandy, what are your thoughts on 4%? Is that a good rate someone should go ahead lock and in if they were to receive that today? 

Brandy: Absolutely, 4% is an awesome interest rate. I think a lot of people are seeing that rates have been in the two’s and rates have been in the three’s, so they’re starting to be a little confused as to whether or not 4% is still good. But historically 4% is an amazing interest rate, and everyone should be jumping at the chance to lock in to a rate of 4%. 

Rob: Absolutely. Shelly, what are your thoughts on 4%? Would you lock in? 

Shelly: Absolutely, hands down! My first mortgage rate on my first home was 13%, my second home was 11%. So today the consumer is spoiled with these interest rates being less than 4%, when the average interest rate has been 6% over the last 50 years. 4% is still considered a historical low for me, and I would definitely lock at that rate and take advantage of locking in at lower rates that we have available today. 

Overview:

• 4% is a great home mortgage interest rate for prospective buyers
• 4% is a historically low interest rate for a mortgage to build a house

How do you finance home construction?

What types of loans are available for new home construction during COVID-19?

Rob: How do you finance a new home construction and what types of loans are available to build a new home?  Brandy, can you tell us a little more about the types of loans available for new home construction?   

Brandy: Sure, so there’s many different options when you’re financing a new construction home.  One of the types of mortgages is called an end loan.  That is a similar type of loan, its really the same type of loan that you would get if you were to purchase an existing home.  The only difference between purchasing an existing home and a new construction home when it comes to financing and end loan is that you will end up getting approved for the mortgage very early on in the process.  The builder is going to expect you to have your mortgage approved before they start building the home, however, your not financially responsible to make mortgage payments on the home until the house is complete and you’ve taken possession of it.   

Rob: Thank you.  Shelly, do you want to tell us a little bit about construction loans?   

Shelly: Absolutely, Rob.  So with a construction loan, the settlement actually takes place before Keystone starts digging on your property.  The down payment that you provide Keystone is used when you go to settlement and you pay interest only throughout the construction, and then when the home is done that construction loan gets modified into your permanent loan.  That permanent loan can be a conventional 30, 25, 20, or 15-year loan.  It can also be an adjustable rate mortgage, but the loan program during construction is interest only and at the very end when your home is done, it modifies into that permanent loan that you are going to have for the term period you need: 30-15 years, whatever that is. 

Overview:

• End Loans- end up getting approved for the mortgage very early on in the process of financing building a new home
• When getting a loan to build a house, construction loans or first time home builder loans take place prior to building
• The construction loan program is interest-only during the construction and is modified to a permanent loan after construction

Is it hard to get a construction loan?

Rob: Is it hard to get a construction loan?  Shelly, why don’t you tell us a little bit about that.  Is it harder to get a construction loan than an end loan or a permanent loan? 

Shelly: Its not harder, by all means, not harder.  The loan process for all loans is tedious.  Theres a lot of paperwork involved with mortgages and that’s just the way it is, but we do require a minimum credit score of 680 for our construction loans, but we can also add loan programs with as little as 5% down and that’s affordable for many people.   

Rob: Great, thank you so much.  Brandy, did you want to add anything to that.  Is it hard to get a loan in general.  Is it more challenging now than it used to be?   

Brandy: Well, it depends how far back we are looking at.  if you are to compare how hard it is to get a mortgage now compared to 20 years ago, yes, it’s a little more difficult to get a mortgage now.  Guidelines have definitely changed over the last 20 years, however, aside from being tedious and having to provide some paperwork, the mortgage process is not something that you should be scared of.  Your loan officer is going to walk you through the entire process, they’re going to hold your hand and make sure that the process is as smooth as possible.  The biggest thing is just to be cooperative.   

Rob: Alright, and when we talk about submitting additional paperwork, this is your protection as a buyer to know that we are not in a 2005-2009 situation where lenders were not collecting adequate paperwork and loans in some instances were made that were not in their marketplace’s best favor and that inflated prices and caused what we had happen in 2008-2009.  That’s the exact opposite of what we have right now where it is harder to get a mortgage but only in a sense that it always should have been this way.  Have credit, have money down, have good employment and that’s what really is the foundation of our strong housing market that we have today. 

Overview:

• You need a minimum credit score of 680 for a construction loan to build a house, but to finance a home construction loan you can add a loan program with as little as 5% down
• Obtaining a mortgage is more difficult now than in years prior as guidelines have changed and practices that should have been adopted 10-20 years ago are just now being adopted

When building a home, when do you pay?

Rob: Brandy can you tell us a little bit about that? 

Brandy: Sure, when you enter into an agreement with Keystone to purchase a home, you will be paying a deposit. That deposit will go towards your down payment. So, your deposit is something you are going to pay in the beginning of the process, usually before the builder starts to build your home. Your down payment is not due until closing, which is when the home is complete, and you are taking possession of the home. 

Rob: Great. Now Shelly, that’s a little bit different than a construction loan. Can you tell us about a construction loan and when payments are due? 

Shelly: Absolutely. With a construction loan, it is similar for the end loan than a deposit still needs to be given to Keystone when you sign that contact. Once your home is complete, that construction loan will modify or convert over into your end loan or permanent phase loan which is your 30-year fixed or 15-year fixed, whatever loan program you choose. Another benefit of the construction loan is that your current home, if you own a home currently, you don’t have to sell that home to start construction on your new home. You need that minimum 5% down payment and if you have that money up front, you can start on the construction loan and continue living in your current home until your new home is done. Once your new home is done, chances are your current home will be sold by then. Then you can take the additional equity from that home and apply it towards your end loan, that permanent loan, reduce that loan amount, and have a lower monthly payment moving forward. So, with the construction loan, the money is going to be due before Keystone starts digging on your new home. 

Overview:

• When financing a new home build, deposits are paid at the beginning of the new home process
• Construction loans also need a deposit at the beginning of the new home process
• The down payment when financing to build a house is not due until closing
• Once your home is complete, your construction loan with be modified into your end loan or permanent phase loan which is your 30-year fixed or 15-year fixed program

Can you get a construction loan without a down payment?

Rob: Can you get a construction loan without a down payment?  So, Shelly I’ll have you start off here and give us some information on that.  So can you get a construction loan without a down payment? 

Shelly: See, the construction loans that take place before construction begins does require a minimum down payment of 5%, but that all.  So, if we need a program with no down payment we need to focus on the end loans only and we provide quite a few different programs to meet those needs and I’m going to ask Brandy to continue sharing all of those different programs. 

Brandy: Thanks Shelly.  Yeah just like Finance of America, RMS is also available to do these end loans.  End loans can be conventional loans, FHA loans, VA loans, USDA loans, and I know that this is a lot of acronyms that we are throwing at you but there’s just different types of loans available for new construction.  One benefit of some end loans is there are a few different programs that will allow for 0% down payment which is 100% financing, when we can finance the entire price of the home, including the options that you put into the home.  A few of these options would be a VA mortgage, which is for veterans of the United States.  We also have a couple state and bound programs that also allow for 100%.  If you are not eligible to finance 100%, we have many other programs with as little as 3% down.

Overview:

• A construction loan to build a house requires a 5% downpayment
• End loans are widely available in many varieties

Is it more expensive to purchase an existing home or a new home?

Rob: Is it more important to purchase an existing home or a new home?  And so I’m going to touch on that a little bit because of the benefits that are associated in buying a brand new home.  A used home you will typically find a lower sticker price or advertised price, but what you’re not getting when you purchase a used home is the ability to personalize that house with your favorite colors, your selection, your design, and at Keystone in particular, we give you the option to configure the house, in a custom manner, so you are making as few concessions as possible when you invest in a home with us.  That’s in addition to the financial benefits of having a warranty on your brand new home, so it’s not possible for you to move in and have the heating and cooling system break or the roof leak and you get stuck with the bill.  Then you also have to talk about the energy efficiency.  The way that we are building these homes now is so materially different than the way that they were built 10 or even 15 years ago.  It is not a stretch to say that a new home will comparatively save $100-$200 a month in your utility bills and with interest rates as low as they are right now, a $100-$200 a month savings equals $20,000-$40,000 a month in sales price that you can finance.  So a $400,000 existing home is equivalent to maybe a $440,000 new home when you account for all of your total costs.  So, there is more to be considered when comparing a used home to a new home than just the price and the square footage.

Overview:

• Used homes are often less expensive than financing a new home build based on the initial sticker price and mortgage to build a house
• When financing a new home build, consider that new homes offer greater customization options
• New homes are built with newer materials that can help save money over time on utilities

Will mortgage rates be going down after COVID-19?

Rob: Will mortgage rates be going down?  Shelly, you want to take a stab at that one?   

Shelly: Sure, thank you Rob.  I think that interest rates definitely have the potential to go down.  We don’t know how far and we certainly don’t know when.  We get a new rates sheet every day, and rates are impacted by the trading activity on Wall Street.  So, the current economy, the current status that we are in, is supporting these lower rates and we are going to see these for a while.  They may hit those lower rates, but be prepared that the rates may be going the other direction.  Look for a program with an extended lock program so that you are protected with these lower rates at this lower time.   

Rob: Great input!  Brandy, what are your thoughts, do you think that mortgage rates are going to be going down from here? 

Brandy:   I’m hopeful that we will see a little lower interest rates, although they are really really good right now.  We’re seeing the industry start to repair itself, which has lead to a decrease in rates over the last couple weeks.  I think we’re in an environment where we need to stay patient, we need to stay optimistic.  We may continue to see some volatility with the interest rates, but I think overall we are very very low right now.  There is a chance that we might see a little bit lower, but I also agree if you are looking to buy something, just get locked into your rate as soon as you can. 

Overview:

• Current home mortgage rates have the potential to decrease
• Home mortgage interest rates are subject to volatility due to COVID-19
• Look for a program with an extended lock program for protection with lower rates

Schedule An Appointment To Find Your New Home

Keystone Custom Homes has a variety of homes and styles available to customize your dream home. Chat with a representative to schedule an appointment and find your new home today!

Thank you to Brandy & Shelly for your contributions!
Brandy Traber, Mortgage Originator, 267-258-1235, btraber@financeofamerica.com
Shelly Burkholder, Team Loan Officer, 717-925-2318, shelly.burkholder@rmsmortgage.com

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