With interest rates on the rise and whispers of recession, it’s understandable if you are nervous about a new home purchase. But, despite the market uncertainty, there is still an opportunity available in the current housing market to secure a new home cost-effectively.
We spoke with Tayt Ianni, Senior Mortgage Loan Consultant of Kinecta Federal Credit Union, who offered valuable insight into why this is still a great time to build or buy your dream home with TJH.* His analysis of current market conditions highlights some compelling reasons why investing in real estate, whether rebuilding your primary residence or purchasing a new home, could pay off.
Concern #1: “The market is too volatile.”
While there are always market risks to consider when investing in real estate, owning a home remains one of the best financial investments you can make today for secure long-term stability and growth. U.S. home values have consistently increased throughout various economic climates, even with occasional dips during recessions. In fact, when adjusted for inflation, home appreciation still beats out even historic highs from the 1970s and 2000s.
It’s a common misconception that the current housing market is headed for an inevitable crash. But the likelihood of that is low. The main reason prices rose rapidly is insufficient inventory to meet the demand. In 2020 this crisis was magnified by record-low interest rates and more opportunities for remote jobs, giving people more financial freedom and the ability to relocate to find their dream homes.
Redfin Chief Economist Daryl Fairweather explains that this current housing market is fundamentally different from the housing bubble of the mid-2000s, which was driven by loose lending practices that allowed many homebuyers to take out mortgages they couldn’t afford. “That’s simply no longer the case. The housing market is still much stronger than before the Great Recession,” says Fairweather. So if you’ve been waiting to buy or build your dream home, it might be time to take the next step.
Real estate has proven to be a safe and reliable investment and luxury homes continue to retain their value, even during a recession. 1
Concern #2: Rising interest rates
Taking out a home loan with the rise in interest rates may cause hesitation. However, rates are still relatively low by historical standards and have started to stabilize. When buying or building a new TJH home, you gain access to our preferred lending partners. These lenders offer jumbo portfolio loans with significantly lower interest rates than conforming loans that have been hit hardest by rate increases. Unlike a GSE loan that must adhere to the standards of Freddie Mac and Fannie Mae, the jumbo portfolio loans from our preferred lenders can offer buyers more flexibility and potentially better rates. “People are often surprised by what we can do for them and find our rates extremely competitive,” says Tayt Ianni, a Senior Mortgage Loan Consultant with Kinecta.
Concern #3: “Financing a new home build is too complicated.”
Our end-to-end process simplifies your entire homebuilding experience—including the financing. We partner with trusted lenders that remove the complexities of construction lending and streamline the lending process for clients.
“Financing a new home build with TJH is easier and more attainable than many realize,” says Tayt Ianni. “We offer an all-in-one loan with a one-time close. It avoids the stress and costly transaction fees typically associated with separate construction-to-permanent rollover loans. Instead, our process is the same as a traditional mortgage, just before the house is built.”
Concern #4: “What if interest rates rise before my home is complete?”
A lot can happen to interest rates in a year, and without a lender specializing in new homebuilding and one-time close loans, you may risk a higher rate by having a second loan closing for your mortgage once construction is final. Because our preferred lenders use a one-time close, construction-to-permanent loan to lock in your rate, it eliminates unwelcome surprises and potentially thousands of dollars in additional closing costs. Similar to a fixed-rate mortgage, your interest rate will be determined and set before construction starts, and it will remain the same when the loan converts to a traditional mortgage.
Concern #5: “I don’t know how I will qualify for a second home.”
An existing mortgage on your home doesn’t have to keep you from building your dream home. “One of the biggest concerns we see is people thinking that they have to qualify for two homes and pay two mortgages [throughout the build process of a TJH pre-construction home],” says Tayt Ianni of Kinecta. “The reality is that they will have a much more affordable mortgage payment on the new home until it’s complete. At that time, they can sell the old home and apply that amount toward the new loan.” While it’s likely a bit more complex behind the scenes, Kinecta and our other preferred lenders make the lending process simple for clients:
- Payments are more affordable because they are interest-only, based on the outstanding loan amount
- Funding occurs in disbursements to TJH—known as the draw process—as construction on the home progresses
- The loan converts to a mortgage and principal payments begin after the final home inspection and/or certificate of occupancy
Concern #6: “Building a new home requires more capital upfront.”
The lending process to build a new home on your existing homesite is similar to that of purchasing a TJH pre-construction home, but there’s an advantage to rebuilding with TJH. You can receive lending based on the future appraised value of the home after it is built. The lender will then pay off your previous mortgage, and the new funding will go toward the building process. This eliminates having a second mortgage and could offer more flexibility and lower payments depending on the appraised value ratio to the existing mortgage principal.
Concern #7: “Rising costs of building supplies.”
With current inflation rates and the prices of building materials constantly changing, the last thing you want when building your new home is unexpected costs during the construction process. Unfortunately, it’s more common than many realize, but it all comes down to the type of builder you choose. If you work with a cost-plus builder, the price you agree upon could change depending on price increases of materials throughout the build process.
With BUILD by TJH, the base price of your home build is guaranteed and locked in when you sign your contract. Even if the cost of materials or lumber increases during construction, your budget stays the same. “We recommend Thomas James Homes to clients that want to build a new home,” says Tayt. “Their process is quick, they won’t go over budget, and they have greater buying power when sourcing materials.”
“I love that clients can design and build their dream home. One of my favorite things is when they realize a new home is more cost-effective when they build with us. It just makes sense.”
– Brian Reid, Chief Sales Officer, Thomas James Homes
If you have been dreaming of a new home but have hesitated because of current interest rates or navigating the financing process, it’s time to take a closer look at BUILD by TJH. From financing with our preferred lenders to our turnkey design and construction process, we make building a larger, design-driven home on your homesite worth it.
*Kinecta Federal Credit Union and Thomas James Homes are not affiliated. Membership requirements apply. NMLS (Nationwide Mortgage Lending Service) ID: 407870. Subject to credit and property approval. Rates, program terms, and conditions are subject to change without notice. Not all products are available in all states and for all loan amounts. Other restrictions and limitations may apply. The actual terms of the loan will depend upon the specific characteristics of the loan transaction, the applicant’s credit history, and other financial circumstances that may apply
Federal Reserve Bank of St. Louis. “Average Sales Price of Houses Sold for the United States.” https://fred.stlouisfed.org/series/ASPUS