How Do Rising Interest Rates Impact Your New Home Build?
Here’s what to keep an eye on.
In the last several months, the glorious run of low interest rates has begun to draw to a close. Mortgage rates dropped to historically low levels — down into the 2-3% range — in 2020, and have been slowly climbing back up since then, with most notable increases in the last few months. Homebuyers at every price point took advantage of the rates as they slid from those historic lows, back up to the 5% range. Now, rates continue to rise, and although they’re quite level with where they were before the pandemic hit, it’s still important to keep an eye on them and consider how they’ll impact your future buying plans.
Mortgage Rates and Home Budgets
While the fluctuations in interest percentage points may appear small at first glance, mortgage rates play a large role in the ultimate amount a homebuyer will pay over the life of their loan as well as monthly. This means that the value and quality of the home you can afford to buy or build may change drastically as interest rates fluctuate.
For example, assume you found a home you’d love to buy, and it’s listed for $350K. In 2020, you might have locked in a 2.75% interest rate, which would make your monthly payment $1,429. Not bad! Now, if you found that home today and were offered an interest rate of 5.5%, your monthly payment shoots up to $1,987. A difference of over $500 per month — $6K per year — yet the value and quality of the home hasn’t changed. Understandably, many people find that their budgets have to shift quite a bit lower in order to accommodate the latest mortgage rates and the resulting monthly payments.
Building a New Home
Knowing that shifting mortgage rates can make such an impact on monthly payments and overall budgets, it’s especially difficult for those building new homes to financially plan for their future payments. It’s important to understand the various stages of financing your new home build.
Whether you’re building with a developer or building a new custom home tailored to your tastes and lifestyle, financing is a bit less straightforward when building compared to buying an existing home. With Atmos, each step is clearly outlined so that you can plan and budget.
First, you’ll take out a construction loan with a 4.25% non-negotiable interest rate. This loan will be in place while your home is built, and the minimum down payment will vary based on how large the overall loan is. If it’s for $548,250 or less, the minimum down payment is 5% of the loan, while if it’s for anything above that amount, it will require a 20% down payment.
Once your home is nearing completion and you’re 30-45 days out from your closing date, it’ll be time to convert your construction loan into a permanent loan. At this point, you’ll lock in the interest rate for your mortgage. Because this happens so far down the line from the time when you choose the details of your home and set your overall budget, it can be difficult to predict where interest rates may stand when it comes time to finalize your permanent loan.
Fortunately, with Atmos there is also a rate lock option available upon request that allows you to lock in an interest rate earlier in the process and protect yourself from dramatic mortgage rate increases that may occur during construction.
While the custom homebuilding process is full of decisions and options, it’s also the only route that can result in a home specifically tailored to your needs and your style. With Atmos, each and every step of the process is streamlined to be as easy as possible. Get started today!
