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Barbara's Blog

Financing New Construction VS Existing Homes

November 5th, 2020 9:05 AM by Barbara Doeringer

Financing for new construction as well as financing an existing home both involve getting a loan with real estate as the collateral.  They are both the same in that manner, but clearly different in others.   

When someone decides to buy an existing home and take out a new mortgage, the options are nearly unlimited.   Fixed rate programs mean the selected interest rate remains the same throughout the life of the loan.  This provides easier financial planning for those who intend to keep the property for the long term, giving a fixed mortgage payment every year.   An adjustable rate mortgage can adjust but to do so the loan must follow very specific rules laid out in the note.  An adjustable rate mortgage, or ARM, can adjust based upon a selected index and then adding a margin to that index to arrive at the new mortgage rate until the next adjustment period.  There are also consumer protections called “caps” that limit not only how much the rate can move but also how much the rate can adjust over the life of the loan.   For both types of loans, the shorter the term, the higher the monthly payment but at the same time there is less overall interest paid during the loan.  

A construction loan is used to finance new construction. Construction loans are issued only for as long as it takes to build the home.  Once the home is completed, the construction lender sends out an inspector to make sure the home is finished and ready for occupancy.  When this determination is made, the construction loan must be replaced by a permanent mortgage, the same types of home loans used to finance an existing property.  A construction loan amount is based upon the plans and specifications laid out by the builder and typically a higher down payment is required, such as 20%.  Also, a loan for an existing home can be found at a mortgage company or through a buyer’s bank, but a construction loan is usually only provided by a bank.  

There is a lot to know, whether or not the purchase is an existing home or new construction.   That’s why it is important to work with a knowledgeable realtor who has direct contacts with several types of lenders who have various financing options.  We, at Whippet Properties of Florida, have excellent lenders lined up who can walk you through any kind of financing to attain your dream home.  Let them get you the perfect mortgage after WE find you that perfect dream home!

Posted by Barbara Doeringer on November 5th, 2020 9:05 AM


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