One of the impacts of the COVID-19 pandemic has been a significant decrease in interest rates. In July 2020, mortgage interest rates dropped to less than 3% for the first time, encouraging many current homeowners to refinance their existing loans and spurring those who hadn’t yet entered the housing market to consider buying. As mortgage rates remain low, you might be considering buying a home or building a new home.
Before you decide to take advantage of these lower interest rates, review the homebuying process and compare it to the steps required to build a new home. You might decide that new construction is the way to go or that the money you save due to low mortgage rates gives you the option of personalizing an existing home.
The Homebuying Process
Unless you have enough cash available to pay for a home in full, upfront, you’ll need to get a mortgage. If you are serious about buying property, start the mortgage process before you begin looking at homes. Getting preapproved by a lender shows sellers that you are ready to buy a house and are likely to have the financing to pay for the expense.
While lower interest rates make mortgages attractive for buyers, many lenders have tightened their requirements in the wake of the pandemic. Fearing a large number of defaults and foreclosures on existing mortgages, lenders are more selective about who they lend to. You might have to put down a higher down payment to get approved for a loan. The lender might offer less than you anticipated, too.
When you start the mortgage application process, you can expect the lender to ask you to provide proof of income, a list of your assets and detailed information about your investment and savings accounts, plus any outstanding debts you have. The lender will also ask you how much you plan on putting down upfront. After reviewing and verifying your information, the lender may preapprove you for the mortgage. They will let you know how much you can borrow and the interest rate you can get.
With your preapproval in hand, you can start to look at houses and put in offers. If you find a home you like, you can submit a bid through your real estate agent. Many communities have become seller’s markets during the pandemic, meaning there is higher demand than availability.
In a seller’s market, multiple buyers will likely be interested in the same property. A bidding war can take place, during which interested parties push the property’s price up. The seller has the upper hand and can turn down offers below or even at the asking price, assuming a better offer will come along.
How Building a Home Is Different From Buying a Home
In a seller’s market, home inventory is low, so you might not find your ideal home. If that happens, one alternative is to build a house from scratch.
Financing new construction is different from the process of getting a mortgage. You can’t get a mortgage when the home doesn’t yet exist, as there is no house to serve as collateral on the loan. Instead, if you are going to finance the homebuilding process, you need to apply for a construction loan.
Construction loans differ from mortgages in several ways. First, they are usually short-term. While mortgages often have 30-or 15-year terms, a construction loan may only be for one or two years.
Home construction loan rates also tend to be higher than mortgage interest rates. With a mortgage, the home acts as collateral, and the lender can claim it and sell it if the borrower stops making payments. Mortgage rates tend to be lower.
After construction wraps up, the balance is due on the construction loan. You might still need a mortgage to afford the property, meaning you’ll have to go through an additional approval and closing process. Construction-to-permanent loans are also available. A C-to-P loan converts to a mortgage at the end of construction.
While the process of financing new construction can be more complicated than financing an existing home, you get more freedom when you build a house from scratch. You can design it to meet your exact needs, choosing the number of bedrooms and bathrooms that best work for you and including any desired amenities.
Renovating an Existing Home
If you were considering buying a home before the pandemic began but put those plans on hold, you might be in a good place now to start the process of applying for a home loan. One advantage of having to wait is that you will likely get a better interest rate than if you bought before the pandemic. A lower rate means that your monthly payment will be less.
Even if you can’t find an existing home that meets all your needs or has all the amenities you want, saving money on your mortgage gives you some leverage. With a lower monthly payment, you could afford to put more down upfront, giving you more equity in the house from the beginning. You could borrow against that equity to renovate the home, adding luxurious features or practical updates.
For example, you could retrofit an elevator into the existing home. Adding an elevator can make your new home more convenient and allow you to age in place.
Another option is to take out a home renovation loan, either for a property you already own or one you are in the process of buying. You can use the funds from the renovation loan to pay for improvements and upgrades to the home. If you already own your home, you could refinance your existing mortgage to take advantage of low interest rates. Doing so might get you some cash to cover the cost of installing an elevator, updating the kitchen or bathrooms or making other improvements to boost your home’s comfort and value.
Contact Inclinator to Add an Elevator to Your New or Existing Home
Whether you build a new home, buy an existing one or renovate your current home, a home elevator can make your residence more convenient and comfortable. Inclinator installs home elevators in new construction or can retrofit an elevator into an existing property. Many cab styles are available to match your home decor and aesthetic. To learn more, find the Inclinator dealer nearest you today.