Financing New Home Construction with a Realtor at Your Side

If you're considering purchasing a new construction home, you should consult with a real estate agent who has experience working with local builders. Your agent can help you take advantage of financial incentives being offered from new home builders. These incentives can be really attractive to home buyers who’ve been sidelined during the last few years by low inventory and high mortgage rates in Ponte Vedra Beach!

Right now, we’re seeing builders offer mortgage rate “buydowns” and other options that can help buyers secure a more competitive mortgage and interest rates. These incentives can make new construction a more attractive option than the purchase of a resale home. 

Working with an experienced new construction real estate agent is critical if you’re a buyer considering new construction, especially in Ponte Vedra and Jacksonville. A qualified Realtor can offer support, industry insights and valuable negotiation skills to help you find the best deal for your specific circumstances - at no cost to you. 

‍Frustration and Reluctance: The Domino Effect 

For several years, the inventory of available homes for sale has been frustratingly low in Ponte Vedra Beach, Jacksonville’s Beaches and across much of the nation. 

That’s because many homeowners are locked into 3% to 4% mortgage rates they snagged before rates went up a few years ago. Homeowners who would like to sell cringe at the thought of having to buy their next home at current mortgage rates, which were 6.7% on average in July of 2024.

As a result of this “locked-in effect”, builders have ramped up new construction and found ways to combat affordability concerns.

While new home construction has traditionally accounted for 10% to 12% of the market for single-family homes, it now comprises more than 30%, according to a recent National Association of Realtors (NAR) article.

Builder’s Response

Builders are increasingly offering attractive sales incentives, such as buying down mortgage rates, to sell their new homes. Mortgage buydowns allows the home buyer to lower their mortgage interest rate for the first few years in exchange for an upfront fee.

Another way builders are enticing buyers is offering thousands of dollars toward closing costs or flexible money to use for upgrades in the design center. 

As a buyer, you need to know these builder incentives are available! That’s why your Realtor is the linchpin in the process. An experienced agent is invaluable as an advocate who is looking out for your best interests.

Not only can your agent help negotiate the best incentive plan, they know the reputation, niche and price points of the region’s builders. Your Realtor should know the advantages, drawbacks and amenities of the neighborhoods that fit your family's needs. Your agent can help you find the right lot, the right size home and floor plan for your budget. 

Once construction begins, your agent will work with outside inspectors to make sure your new home is properly built and identify any issues before you move in.

When it comes to new home construction, a knowledgeable Realtor can be priceless. Among other things, they can help:

• Evaluate the best incentive options: Your agent will point out the crucial differences between financing options from an outside lender and the builder’s preferred lender. They negotiate builder credits too. Not all options are equal, but your Realtor can help you negotiate a new construction contract that’s the best fit for your specific needs and budget. 
• Choose the best financing options: Financing new construction is like buying a resale home. Buyers may choose fixed mortgage rates for 10, 15, 20, or 30-year terms or an adjustable rate mortgage (ARM) with a fixed rate for 5,7 or 10 years then it’s adjustable. The major difference is a lock period, which means borrowers lock in an interest rate for a set period. When that time frame ends, the interest rate resets to the prevailing rate.

Lisa recently sat down with Derrick Levy, Wells Fargo Private Mortgage Banker, to discuss topics that are often associated with mortgages for new construction homes, such as interest rate locks.

• Navigate construction changes: Changes during the building process are common and can be expensive and often frustrating. Even seemingly small modifications can require the expertise of architects and engineers which can extend a project timeline and push up the budget. Change orders may also occur due to upgrades, errors and omissions in plans or specifications, code changes, or having to substitute building materials, construction methods or vendors. As a result, room for modifications should be built into your construction budget: A good rule of thumb is to add 5 to 10% to the overall budget to account for changes.
• Make sure you come prepared: Like buying a resale home, pre-approval is necessary when purchasing a new build. Once under contract, you’ll need a lender commitment letter before the contractor will break ground. You and your bank will agree on a construction draw schedule, which will determine when money will be dispersed to the builder as specific stages of construction are completed. This allows the bank to see the progress and release funds appropriately to keep the project moving forward.

Lisa and Derrick also talked about the stages of pre-approval for a mortgage on a new construction home.

• Guide you if you need to cancel the contract: Getting out of a home construction contract can be costly. But it can happen! If you need to cancel your contract you could lose your initial binder deposit and the builder may require additional funds from you in order to release you from the contract. It’s important for you to read your contract and work with a real estate agent who can help you understand the implications of a cancellation.