Building a new home comes with its own unique set of circumstances. The time between breaking ground on a new home and your big move can make a huge impact on your experience. Consider these two scenarios:
Scenario One: Construction Heartbreak
Imagine this: you have spent months working with a builder to build the home of your dreams. You get excited to decorate and open a new credit line with the big furniture store in town so you can upgrade your living room, dining room and master bedroom with all new furniture. Then you decide that a new car would look really good pulling into the garage of the home of your dreams, so you trade in your current vehicle.
Now you’re 30 days out from closing and your loan officer calls. It’s bad news. That extra credit line and new car payment pushed you over your debt-to-income ratio limit and your credit score dropped. You can’t close on the house. Now you have a nice new car and a bunch of fancy furniture but nowhere to put it.
Scenario Two: Home Sweet Home
Now, imagine this: you’ve spent months working with a builder to create the home of your dreams. You stayed vigilant, watched your bank account, cooked instead of eating out, etc. You built up a good chunk of savings and were able to pay off a pesky credit card balance.
Now you’re 30 days out from closing and your loan officer calls. It’s good news! That hard work paid off, your credit score jumped several points and you can get a lower interest rate than previously thought. You are thrilled knowing your monthly payment is going to be lower than estimated and you may just have enough saved up to buy a new couch with cash a few months after you close on your home.
Purchasing new construction can take months longer to close when compared to purchasing an existing home. Use that time to your advantage, not your detriment. Here are a few tips to prevent new construction heartbreak:
- Maintain your employment. Having a consistent and reliable source of income is key to your loan approval. Don’t switch jobs if you can help it before consulting with your loan officer to see how it could impact your home purchase.
- Don’t spend your savings. There are expenses that come with a home purchase, including home inspections and appraisals. If your builder isn’t covering your closing costs, you’ll have to pay those too. Don’t spend your savings on furniture or other non-necessities. Keep that cushion in place until after closing.
- Don’t open new credit lines. I know it can be tempting to open that zero-interest credit card and get new furniture for your home. Resist the temptation until after your loan has funded. Opening new credit lines can impact both your credit score and debt-to-income ratio.
- Ask how you can work to improve your credit. Typically, the higher your credit score, the lower your interest rate. Most of us have at least a little room for improving our score. Ask your loan officer for tips on how you can improve your score while your home is being built.
- Keep an eye on interest rates. Interest rates impact your monthly payment and the total amount you’ll pay over the life of your loan. But many do not lock in the interest rate until you are within 30-45 days of closing. Interest rates rise and fall depending on market conditions. Keep an eye on rates as you progress through the new construction process. If you see them start to fluctuate, consult with your loan officer on a plan of action.
- Stay in communication with all parties throughout the process. The new construction process takes longer than the typical existing home purchase. You won’t need to be in constant contact with all parties for the entire process, but it’s good to routinely check in for updates. Set a calendar reminder to follow up every few weeks, and more often as you get closer to closing.
With these tips and the support of your knowledgeable homebuying team here at Veterans United Home Loans you can set yourself up for a successful and rewarding new construction experience.
Photo credit: Paul Sableman