Financing New Home Construction
We’ve mentioned recently that it’s been a seller’s market in the real estate world, but new construction is improving prospects for buyers. Now we’re learning that the number of new housing starts is growing. The U.S. Census Bureau reports that residential housing starts in October of last year were up nearly 14% over September.
If you love the idea of building a new home that’s all yours, don’t let financing intimidate you. For guidance, talk to your chosen builder or bank to learn about how the construction is paid for and securing a mortgage.
Often, the builder pays for the financing during the construction of the home. When building is complete, you secure a traditional mortgage, buying the home from the builder. So how can you get the best mortgage rate? There are several factors any lender considers.
Income and Employment
Two years is the general rule for demonstrating job stability. Your mortgage application is stronger if you’ve been in the same job for at least two years, unless you’ve made a recent change to a higher paying job. Your overall employment history also matters. The banks will be looking for consistent income earnings. Any long periods of unemployment will weaken your application.
Perhaps even more important than your income level is your credit score, which helps to determine whether you qualify for a mortgage and at what interest rate. The higher your credit score, the lower the rate you’ll pay.
If you find out your credit score isn’t as high as you’d like it to be, give yourself time to improve it. Work on paying down credit cards, paying off loans, and take care of any account balances that are past due. Your credit report might also reveal some errors, which you should correct as soon as you can.
In addition to addressing some of the issues on your credit report, you can earn a better credit score by not opening any new lines of credit for at least 12 months prior to buying a home. That includes new credit cards or financing any major purchases like appliances or cars.
One of our previous posts outlined how credit score improvement can make tens of thousands of dollars’ worth of difference in the total cost of your home.
Providing a minimum down payment of 20% for the purchase of a home is standard for securing the best mortgage rates. The more money you can pay up front, the lower your interest rate. You can still qualify for a mortgage with less of a down payment, but keep in mind the interest rate will be higher. There could be other costs associated with a lower down payment, such as mortgage insurance. Like with improving your credit score, saving for a down payment will take time, and you should consider if taking the time to do that makes sense for you and your home-buying goals.
We encourage you to ask questions of your builder and lender to determine the best way to make buying your dream home most affordable. Interested in seeing what we’re building throughout NH? Schedule a model home tour!