Residential Magazine

Building New May Be the Answer to the Bidding Wars

One-time-close construction loans are an option for frustrated would-be homebuyers

By Laura Brandao

For the past 18 months, buying a home has been like a game of beat the clock. See house, like house, bid over asking price on house, lose house, then start the process all over again. Now, even with interest rates steadily on the rise and several rate hikes still to come, the housing craze remains largely the same.

Why? For one, there is simply not enough inventory. In fact, the number of U.S. homes for sale dropped to a record low in December 2021, falling 14.2% year over year, according to Redfin. Bidding wars will continue until housing inventory matches the number of buyers searching. Prices will continue to climb astronomically and clients will remain frustrated.

Stiff competition

It can be extremely discouraging for buyers to be constantly on the verge of having a place to call home, only to be outbid again. About 70% of respondents said that it’s a bad time to buy a house (likely because of the crazy competition that is causing prices to rise), according to a Fannie Mae survey conducted this past January. Starter homes, which can be roughly classified as those with 1,400 square feet or less, are few and far between, while COVID-19 has made suburban homes much more desirable.

A one-time-close loan allows a borrower to combine financing for a lot purchase, construction and permanent mortgage into a single first-position loan.

When these options for first-time buyers disappear, mortgage professionals are obligated to let clients know about alternatives. Especially at a time when inventory is at an all-time low, it must be a priority to help clients feel like finding a home is possible, educate them on loan programs that they qualify for and make their dream a reality.
One of the best alternatives right now may be to build a new house. With all the talk about expensive lumber prices, material delays and labor shortages, this might sound counterintuitive. But according to Redfin, more than one-third of homes for sale in December 2021 were new construction — the highest share on record and a number that is expected to increase. New construction may be the smartest move a prospective buyer can make in today’s market.

Debunk misconceptions

Before diving into why mortgage and real estate professionals should be recommending new construction as an alternative, let’s first debunk some misconceptions surrounding it.
  • Misconception No. 1: The average consumer won’t qualify for a construction loan because new builds are so expensive. Fact: When people think of new construction loans, they tend to picture a huge mansion. The reality is that modular and manufactured homes are just as popular. They make new homes possible — and much more affordable — for many consumers.
  • Misconception No. 2: The mortgage process for new construction is costly and time-consuming, requiring two closings with a construction loan followed by a permanent mortgage 12 months later, the latter of which could fall victim to higher interest rates and other rising costs. Fact: There are more ways to nab newly constructed homes without putting down 30% in cash and waiting a year to secure a mortgage. One option is a one-time-close construction loan.
  • Misconception No. 3: New construction and one-time-close loans are a recipe for disaster, with the potential to ruin a mortgage originator’s reputation. What if you say the wrong thing? What if your processors miss a step? What about the back end? Fact: Anything unfamiliar to you will seem scary at first. But just like any mortgage product, there are experts in this space to help guide you every step of the way. Having great partners and building the right network is what makes the mortgage industry thrive, and one-time close is no exception. From ensuring that permits are filed prior to closing to tips for handling the underwriting process, there’s no need to be afraid.

Perfect solution

A one-time-close loan allows a borrower to combine financing for a lot purchase, construction and permanent mortgage into a single first-position loan. Borrowers who may not have a lot of cash to put down can access low-downpayment financing while locking in a fixed interest rate before the hikes continue.
This can be the perfect solution for those who are able to see a vacant plot of land and visualize the final results. A one-time-close loan provides the financial security of a fixed interest rate, despite the house not yet being move-in ready. These loans also grant borrowers no requalification while they await move-in day — whether it’s a manufactured home, a mansion or something in between.
Although it’s no secret that inflation and supply chain disruptions continue to be huge concerns, they’re also big reasons why people are holding off on mortgages right now. With so much out of the client’s control, providing them an opportunity to lock in a fixed rate before the next bump is one thing a mortgage originator can do to put the ball back in their court.
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For the past 18 months, so many clients have had to sit back and cross their fingers that the next house they bid on will be “the one.” Even worse, they’re sacrificing what would be nonnegotiable items on their wish list in any other climate.
Not only does new construction offer borrowers the opportunity to build their dream home, customized to their liking, but with one-time close, they’re also able to secure an interest rate while they remain near historic lows. By being able to offer alternatives such as one-time close, you’re giving clients a small token of financial certainty at a time when prices everywhere else continue to soar. ●


  • Laura Brandao

    Laura Brandao is chief growth officer and a partner at mortgage lender EPM, where she oversees operations and business development. She also serves as the CEO of Lighthouse Lending Capital, a new division of EPM that specializes in unique loan programs and private lending. She serves with several organizations dedicated to lifting others, including as chair of the visionary program for the National Association of Minority Mortgage Bankers of America (NAMMBA) and on the Mortgage Bankers Association of New Jersey’s women's committee.

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