Myth Busting 5 Common Home Financing Misconceptions
With mortgage rates soaring, you’ve missed your window of opportunity to build a home. Right?
Not at all, mortgage loan officers say. In fact, now is actually a great time to put yourself into the home of your dreams.
“I don’t think it’s time to panic whatsoever,” said Clint Forester, a mortgage officer with Fifth Third Bank. “At the end of the day, real estate is still the safest investment long term.”
The surge in mortgage rates over the first half of the year has been the most dramatic change in the housing market in over a decade. Yet, it’s a common misconception that higher rates make building a new home unaffordable.
And that’s not only the home financing myth floating around.
We asked four preferred lenders who partner with Eastbrook Homes to share common misunderstandings people have about financing a new build. You might be surprised – and relieved – to hear the truth:
Myth: You Have To Sell Your Home First – Eastbrook’s preferred lenders offer a Finance First program that closes on your new home loan at the start of construction, but doesn’t require any monthly payments in most cases until after your home is finished. That way, you can start construction on your new home before selling your existing house, and you won’t have to take on a second mortgage payment. “Your loan is done literally before your house breaks ground,” said Becky Sims, a mortgage loan originator with LMCU. Once you sell your existing home, you then can apply the proceeds to your new mortgage, if you’d like. Another option is an end loan that doesn’t close until after your new home is finished, giving you time to sell your existing house while your new build is already underway. “Most people are super surprised that you don’t have to make two house payments (during construction), and how easy it is to transition from your old house to your new house,” Sims said. “There’s lots of ways to take away those worries and build your dream house. Eastbrook makes it so easy. It’s just important to talk to a lender about how we can make it work.”
Myth: You Need A Big Down Payment – Inflation is real, and it may be sapping discretionary cash from your potential down payment. But don’t let that stop you from building a new home if the time is right for you. “Most people think you can’t get a construction loan unless you put 20% down,” said Joe Sambaer, senior mortgage banker at Dart Bank. But 5% down is all that’s needed on a conventional, 30-year fixed-rate mortgage. Some lending programs require only 3% down or even 0%. Now, keep in mind that if you put less than 20% down, you’ll pay private mortgage insurance, or PMI. But guess what? “It doesn’t cost that much if you have good credit,” said Luther Trook, a mortgage loan officer with LMCU. “You can also get rid of it by paying a single fee upfront, and that’s usually more cost-effective.”
Myth: You Can’t Build A Home If You’re Changing Jobs – A lot of people have been changing jobs as the so-called Great Resignation continues.
You might think you need to be in your new job for a certain amount of time before building a home, but that’s not the case – especially if you’re staying in the same industry. “That kind of change in job is not a problem,” Sambaer said. Even if you have changed to a different line of work, if your new job comes with a set salary or hourly wage, you should be able to get pre-qualified to build a home immediately.
Myth: Getting Pre-Qualified Takes A Lot Of Time – Sometimes you come across an Eastbrook community with a lot available and you don’t want to miss out. No worries. You can get pre-approved right now. “It’s literally just a 10- to 15-minute phone conversation,” Trook said. “A lot of people think it’s a scary process and you need all this (financial) stuff. If you’re a salaried or an hourly individual and you’re working full-time, I don’t need anything from you to send you a pre-approval letter.” There’s no application fee to get pre-qualified to build with Eastbrook. And unless you’ve been applying for multiple credit cards and auto loans over the past 30 days, the credit inquiry run by your mortgage lender isn’t going to make a big impact on your credit score. “It’s always wise to get pre-qualified,” Sambaer said.
Myth: All Adjustable Rate Mortgages (ARMs) Are Bad – Unlike a fixed-rate mortgage that stays the same over 15 or 30 years, an ARM keeps a constant rate of interest for a period of three, five or seven years before adjusting to whatever the current market rate is at that time. Yes, there is risk that your interest rate could increase in the future with an ARM. But guess what? ARM rates are so much lower than fixed mortgage rates right now that you could save tens of thousands of dollars in interest over the next several years. Eastbrook’s preferred lenders are doing lots of 7-year ARMs this summer. “ARMs get such bad press, but the reality is that’s the best option for everybody right now,” Trook said.
The housing market has been in a low-rate environment for much of the past two decades. And even though mortgage rates have risen through the first half of this year, they remain low by historical standards.
So, don’t be scared off by higher rates or any of the other myths discussed above. By working with one of Eastbrook’s preferred lenders, you can sort through all of the available options to make building your dream home an affordable reality, even now.
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