Buying New Construction, Financing and Future Interest Rates

Here’s a three-part question recently asked by a new construction home buyer I’m working with… “If my new home won’t be ready until June, how will that affect my financing contingency, when can I lock in my rate and what happens if rates spike up between now and June?”

That’s a very good and important question.

To answer the first part of that question, your financing contingency depends on the what the builders’ contract says. In my clients’ particular case, the builders lender has 45 days from the date of ratification to find him a loan. If they can’t do so within those 45 days, they can extend that time period for another 30 days.

Notice that I highlighted “date of ratification.” Whether you settle in 30 days, 6 months or 9 months, the financing contingency usually starts when you sign the contract and it’s then signed by the builder’s rep.

But – and a very important “but” – if you were to do anything to adversely affect their credit, you could lose the financing contingency time period and could be in default (aka lose your $20K deposit).

To answer the second part of that question, the typical interest rate lock is done 30, sometimes 60 days before settlement. If you would like to lock it in for longer, you should check if it’s possible with your particular lender. Even if it’s possible, you will most likely have to pay a point(s) upfront to do so. (One point is equal to one percent of the loan amount)

If you’re 6 months out from settlement, you may have to wait 4 or 5 months before locking in your rate. Yes, that can be a gamble, but it’s the price you pay for buying new construction.

Which leads me to the third question…

Even if rates go up between now and when your new home is delivered, you may still be responsible for buying the property. And if you don’t move forward with the purchase, you may be in default and could lose your deposit.

Now before you take any of what I just wrote as gospel, let me give you the mandatory disclaimer: 

I am not a lawyer nor a loan officer/lender – this is not intended as legal advice nor guidance – every new home builder’s contract is different – every lender’s guidelines and offerings are different – check with your Buyer’s Agent/Realtor, your loan officer/lender and others for guidance.

***If you are interested in new construction in the Northern Virginia area, contact me before you head out to new home sales centers – danilo.bogdanovic@gmail.com – 703.582.6900. You need to have your own Buyer’s Agent representing and guiding you through the process. Remember – the builder’s sale rep works for the builder – NOT you. And your Buyer’s Agents/Brokers fees are already built into the sales price so it’s of no additional cost to you.