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   ARTICLE   |   From Scotsman Guide Residential Edition   |   September 2014

Give Wings to Your New-Home Deals

Originators should educate clients about the details unique to new construction

Give Wings to Your New-Home Deals

Recent industry estimates have called for a 15 percent to 20 percent annual increase in newly built home purchases over the next several years. That’s good news for families and originators alike. New-home purchases represent one of the primary areas of opportunity in today’s strengthening purchase market.

New-home clients must be aware, however, of several circumstances that are unique to this type of deal. What should your buyers know when a newly constructed home is coming their way.

Unlike existing-home sales — 32 percent of which were all-cash transactions this past May, according to the National Association of Realtors — many buyers of newly built homes tend to finance their purchases. In addition, for a variety of reasons, investors typically aren’t focused on directly buying single-family residences in the new-home market, which means that new-home buyers are not competing with those investors and being outbid by attractive all-cash offers. Many buyers purchasing a newly built home will therefore need to be aware of the mortgage process and some of the nuances that come with purchasing a new home.

For these reasons and more, mortgage professionals should brush up on their local homebuilder business and new-home purchase-market trends, positioning themselves to educate clients and help them prepare for the special circumstances that apply to buying a newly built home. Whether your clients are first-time buyers or have previously owned a home, they may not be well-informed about what to expect when working with a builder and financing a newly built home.

The loan process for newly built homes may be similar to that of existing homes. Potential buyers should be given information and resources to help them understand the paperwork and documentation of income, assets and liabilities just like the resources that would be shared with buyers of existing homes.

There are some notable differences, however, when it comes to educating buyers about new-home purchases, and communicating these special circumstances is critical to keep the process running smoothly. Consider discussing the following topics with your clients.

Time frame

In many cases, it can take six months or more from the time when a buyer signs an agreement with a builder and makes an earnest-money deposit and the time when the newly built home is ready. In that period, buyers may need to arrange for transitional housing if they have already sold their old home.

Further, in the time between signing a contract with the builder and underwriting the loan, it’s important that buyers understand that they should not do anything that changes their credit profile. For example, buying big-ticket items with credit cards, applying for new credit cards, taking out car loans or changing employment may not be wise.

In short, because the time between application and closing is longer because of the building cycle, more buyers are at risk for credit variation, which could affect the offered loan- terms or qualification.

Oftentimes, lenders must update their borrowers’ credit documents more than once during the life of the loan process, so buyers must be prepared and manage their credit appropriately.

Options

Mortgage professionals also should be prepared to discuss the best choices among the loan options available to buyers of newly built homes. Originators should thoroughly educate their clients about the full range of options, including conforming loans, jumbo loans and government loans.

For new-home buyers, it’s especially important to help them understand rate locks and float-down options. Some lenders offer the ability to lock-in an interest rate for as long as 12 months while a home is being built. The option to lower the rate — i.e., a float-down option — also may be available for as long as 60 days before closing if market rates have declined.

In any case, it’s imperative that buyers understand the advantages and costs of choosing either of these options to best accommodate their unique financial situations. Choosing the right type of program will allow your buyers to secure their rates and payments against swings in the market. This type of assurance will remove qualifying concerns and provide comfort to a buyer during the building process.

It’s important to note that this information addresses newly built homes in developments or planned communities. Details about financing are significantly different for clients who desire a custom-built home that requires them to finance the entire building process.

Serving clients

From choosing floor plans, upgrades and amenities to deciding which mortgage option best fits their unique circumstances, new-home buyers have a lot of decisions to make. To help with all of these decisions, mortgage professionals can best serve their clients by forming strong relationships with builders’ sales representatives and preferred lenders that work with clients who are interested in newly constructed homes.

As a team of professionals, you’ll then be able to thoroughly answer questions and deliver a comprehensive buyer experience. Having a preferred lender is a key component in this regard, considering many lenders’ in-depth knowledge of certain markets and builders’ processes.

•  •  •

Market dynamics seem to support continued growth in the newly built home market. Mortgage brokers who make sure that they are up-to-date on financing options and have the resources on-hand to educate buyers will be well-positioned to help their clients prepare for sustainable ownership of a brand new home. 


 


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