This is an analysis that I did for one of my clients who are looking to build. I wanted to help them understand the possible outcome of building and not having final financing in place for another 12-15 months from now, and what it would mean for their budget and monthly mortgage payment. I felt it was prudent to share this, as it applies not only to those who are thinking of building, but also those who are thinking of waiting to purchase.
While we can't predict what will happen with rates, what you can afford now may decrease in the future if rates go up, as they are predicted to. Even though inventory is low and prices are up, the current interest rate environment makes it advantageous to either purchase your first home, move up to something larger to fit your families needs, or even to downsize if your nest is now empty.
If you have questions on whether or not you can qualify for a mortgage, or what you can qualify for, I have a few great lending partners that I can direct you to who would be more than happy to go over your individual situation and see what can work for you.
"If you consider a total budget for lot purchase and building of approximately $600,000 and look out to 12-15 months when the project would be completed, from what we have talked about, this seems like what you were looking at for a total budget.
For arguments sake, if we make a comparison of where rates are now and where they could potentially be and consider a current rate of 4.25% and a future rate of 5.5%.
At a total price of $600,000, if you consider 20% down payment, we would be looking at $120,000 down and $480,000 in mortgage balance 12-15 months from now. At an interest rate of 5.5%, this would result in a monthly mortgage payment of $2,725.39 per month. On top of this would be the closing costs associated with the land purchase, costs of the construction loan, and costs of refinancing once the project is complete. Also, you would have a year's worth of rent payments, which would probably be somewhere between $1,500-2,500 (rental inventory is tight right now as well, there is only one rental available in clover schools and eight available in Fort Mill).
If we look at a purchase price of $700,000 at today's rates of 4.25% at the same 20% down, which would be $140,000 down and $560,000 in mortgage balance. This results in a monthly mortgage payment of $2,754.86 per month. So it would be about $30 a month more, and $20,000 more down payment, but it would save $18,000-30,000 in rent payments as well as the cost of financing of the construction loan and all the additional closing costs. And spare you from having to pick up and move an additional time.
Obviously we can't predict where rates are going to be a year from now, but just something to consider when making your decision. I thought it was a very intriguing discussion and definitely thought the information was worth passing on to you guys. It really comes down to what you would qualify for and, beyond that, what you are comfortable with having for a monthly payment (you certainly don't need to stretch your budget if you don't want to)."
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