Financing a New Home

If buyers are ready to purchase a home and have everything in order, such as their credit scores and general finances, they should learn about the best options available. When financing a new home you should keep in mind several aspects such as thinking about resale value, setting a realistic budget, getting pre-approved for a loan, and not overlooking hidden costs.

Mortgage Contingency

When planning to finance a new home, having a mortgage contingency is necessary. In order to prepare, buyers need a mortgage contingency built into the contract. Since the lending marketplace has changed dramatically over the past few years, getting a mortgage isn’t a guarantee anymore. People shouldn’t assume that it’s easy to get a mortgage. Financial experts believe that securing a mortgage is one of the most important parts of the home buying process.

It’s vital to know your financing options as there are great options out there for new-home buyers, including FHA loans and home builder and developer sponsored financing. Here’s some information on each option.

FHA Loans

The Federal Housing Administration was created in order to help first-time buyers. People can borrow from $271,050 for single-family homes in lower cost cities to $729,750 in higher cost cities such as New York. The FHA does not give loans to buyers that could be potentially risky borrowers, this includes individuals who have a history of bankruptcy.

Here are some benefits of an FHA loan:

• Easy to qualify
• Small down payment
• Higher security
• Lower cost

Each state has different FHA requirements, so you must learn about your state’s specific requirements. If you want to learn more about FHA loans and which banks offer them, you can contact the U.S. Department of Housing and Urban Development.

Home Builder and Developer Sponsored Financing

If you’re looking for excellent buying opportunities, you may benefit from home builders and developers. This includes financing incentives, builders will directly compete with banks and mortgage companies. As the banks and mortgage companies have significant standing and power, the builders are strong competitors of these lending institutions. It’s important to speak with publicly traded builders since there’s less of a chance of running into potential issues.

Shop around and compare builder financing deals with what banks are offering, advises Sichenzia. Many builders are offering terms that are below market rates and less than what local banks are offering. “Many of the loans are in the 5 percent range,” he says. “And they've been that way for the past few months. They’re 30-year fixed rate loans, stable, conservative, and there’s little to no risk.” Look for programs that will save you money with great deals.

Here are some benefits of builders and developers:

• Deferred mortgage payments
• Cash incentives
• Payment of closing costs
• Limited opportunity to use up to 95 percent financing

It’s vital to lock in or guarantee a mortgage rate. When you lock in an interest rate, buyers have the safety of knowing that it will be reserved for them when they finally close on the deal. Alternatively, if it’s not locked in, their deal is at the mercy of market conditions and they must then take what is available.

Another important point to know is that lenders take locking in rates very seriously. When a buyer locks in a rate with lenders, the rate is securely reserved for them.

Additional Resources for Financing a Home

• VA loans can have up to 100 percent financing. Veterans can greatly benefit by using their VA eligibility when buying a new home. With this option they can buy a home with no monthly mortgage or down payment requirement.
• New construction tax credits are state tax credits that exist only for new-construction home buyers. States are allowing these tax credit allocations in order to move existing new construction inventory. The first state to implement these tax credits is California and is offering up to $10,000.
• State housing agency loan programs are another option for first-time home buyers. These programs vary from state to state. Many states offer 100 percent to 103 percent finance. This loan allows buyers to finance closing costs in addition to the full price of the home.