Financing a New Construction Home

Middle Tennessee homebuilders have announced plans for thousands of new single-family homes in recent months. Relatively strong job growth in our market is cause for greater optimism among builders. In August, new homes made up 10.8 percent of all closings. A year before, that figure was 9.7 percent.

The increased activity may have you thinking about buying new construction instead of an existing home. If you haven’t built a home before, you should know that there are some differences in the mortgage process.

Here are some terms you’ll want to be familiar with before starting a new construction project:

• New construction loans. Also known as “end loans,” these put the financial responsibility of the construction on the builder. You can select from a variety of models and choose certain upgrades or finishes based on your tastes. Or if you prefer, you can assume the financial responsibility through a construction loan.
• Lot loans. If you’re not quite ready to build your dream house yet but know where you’d like it to be, you can take advantage of today’s low interest rates by going ahead and buying the lot. If you’re planning to build within the next few years, you may be able to get better terms on shorter loans.
• Extended lock options. Because homes usually take several months to complete, lenders usually won’t lock in a rate until about 60 days before the completion date. Your mortgage advisor can keep an eye on rates and suggest when to “lock in” during that period. If you prefer, you can lock in your rates 90 days, 6 months or even 12 months in advance. However, extended lock options require upfront fees that may or may not be refundable.

Another thing to watch for is the cost of upgrades. Many builders will offer base models at a great price, but you may end up paying a premium for a better lot or exterior, as well as upgrades like hardwood floors, granite countertops, custom paint colors and many more. Just be sure you understand what comes standard and how much the upgrades you want will add to the price of the home.

If you find the perfect floor plan in an amazing community, shop around for financing to make sure you are getting the best deal on rates, fees, terms and advice for your personal situation. Pinnacle can help you find the option that’s right for you. Some builders offer financing through an in-house loan officer, but this doesn’t mean they always offer the best value.

The mortgage isn’t the only thing to consider when building a new home—you’ll also want to take taxes, cost of ownership, speed of transaction and amenities into account. Often you’ll find that new construction can be as cost-effective to buy as an existing home. As always, it depends on what your needs are and what’s available in your market.

Laurel McKenzie can be reached at 615-743-8289 or by email at laurel.mckenzie@pnfp.com.