Jul 21, 2022
Financing a new construction home can be tricky — you not only have to worry about interest rates, but also the volatility of the market. With all the recent inflation in the housing market and construction industry, it's no wonder that new home buyers are feeling a little anxious about their purchase.
Even with these concerns, you can still get a great deal on your purchase by working with a new home builder. Locking in an interest rate on a home loan saves you thousands of dollars in the long run, and gives you the peace of mind of knowing what your monthly payments will be.
If you're considering financing a new construction home in 2022, here's what you need to know about interest rates.
Mortgage Interest Rates and Why They Matter
If you don't have cash on hand to pay for your new home outright, you'll need to finance it with a mortgage. The interest rate is the percentage of the loan that you'll pay in addition to the principal (the amount you borrow).
The higher the interest rate, the more you'll pay in interest over the life of the loan. That's why it's important to keep an eye on interest rates when you're considering a new home purchase.
Interest rates are determined by a number of factors, including:
- The type of loan you choose
- Your credit score
- The current economic conditions
There are a few different types of loans you can choose from when financing a new construction home. Each has its own interest rate and terms.
Fixed-rate loans have an interest rate that remains the same for the life of the loan, no matter what happens in the market. This makes them ideal for borrowers who want stability and predictability.
The Federal Reserve's Interest Rate Hike
For the last several years, interest rates have been at an all time low. Homebuyers were thrilled to lock in rates as low as 2.65% in 2021. However, in March 2022, the Federal Reserve implemented its first interest rate increase since 2018.
Since then, the average 30-year, fixed-rate mortgage has risen from 4.45% to 6.11%.
Interest rates are expected to climb further as the Federal Reserve continues its policy of tinkering with rates to combat inflation.
How to Prepare for Higher Interest Rates in 2022
So rates are climbing, but what does this mean for people shopping for new construction homes?
For one thing, it's important to lock in your interest rate as soon as possible. Stay ahead of the trends and get pre-approved now. Once you've found the perfect home, don't wait to establish your financing.
The longer you wait, the higher your interest rate will be — and that means more money out of your pocket.
Work with a new home builder that partners with a direct lender. This will streamline the process and help you get the best interest rate possible.
Don't let higher interest rates deter you from your new home purchase. With the right builder and financing in place, you can still get the home of your dreams (without breaking the bank!).
At Overstreet Builders, we understand the concerns of new home buyers and are committed to making the purchase process as easy and stress-free as possible. Contact our team today to build your dream home in the Chicago suburbs!