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To buy or not to buy: What rising rates mean for new construction loans

June 30, 2022


June 30, 2022

We’ve seen an increase in new construction loans recently as inventory remains at historic lows. But what happens if you were counting on 3% mortgage rates when they signed a contract over a year ago to purchase a home that still isn’t ready today? 

The price shock is real for many of these new construction homebuyers, but there are ways to help safeguard you from this situation. First: explore options with lenders that offer longer rate locks. Additionally, some lenders offer float-down options – provisions that allow buyers to take advantage of lower rates after locking a rate but prior to closing.
Both 180-day rate locks and float-down options are available through lenders in Morty’s network, but I would also encourage you to consider your longer-term financial picture when setting a budget and figuring out what’s affordable. Saving up to put down a larger down payment upfront can also help to offset some of the additional cost from higher rates in the long run.

– Robert Heck, Vice President of Mortgage @ Morty


Read more of Robert’s recent insights:

I’m selling my house and need to buy a new house, too. Is a bridge loan the right way to go? – Kim. H. 

Bridge loans are short-term loans that cover you until you receive a new type of financing. They typically range from three months to a year, and can help you to move quickly on buying a new home. Homeowners may use them to finance the purchase of a new home when they need to move quickly (such as when moving for a job) before they can sell their home. Bridge loans are not right for everyone as they often have high interest rates and last for short periods of time. 

In a hot market, it’s really important to have a plan for where you’ll live once you sell. For many buyers, it’s not possible to qualify for a new mortgage while holding down the existing costs of your current home. The maximum DTI (debt-to-income ratio) is 40-50%, depending on down payment size and FICO score. Given that markets are highly competitive, you may want to accept an offer on your current home before you’re ready to buy a new one. Renting a home while continuing your search is one option, but keep in mind the added expense – especially given rising rents.

Over the past few years, we’ve also seen instances of lease-backs, where buyers close on the sale of their home with the stipulation that the new owners rent it back to them for a fixed period of time (allowing you more time to find a new home). This arrangement doesn’t work for everyone, as your buyers could be selling as well and facing the same situation. That said, it remains a seller’s market, so it could be worth considering. 


Not sure what to do?

Ask Robert! Send us your questions @HiMorty on Twitter or at MortyReport@morty.com for a chance to be featured in an upcoming newsletter.


Interested in a longer lock?

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Filed Under: Company News, Homebuying 101, Money Matters Tagged With: affordability, float-down options, new build, new construction, rate locks, rates, the morty report

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