Interest Rates & New Homes

By Realtor Reid boles

Finally some good news! The uncertainty brought from the past few years of inflation as well as rising interest rates is starting to clear, we are not out of it yet but the future does look bright for new home buyers especially.

The process of buying a new home is the same, however, at this point we feel that we can see a horizon that holds declining interest rates. As of now we have seen a few reductions and there is no reason to think that they might rise again any time soon, with the potential for a few more reductions coming this year.

This is a great thing for all home buyers but especially new home buyers because of the way that the contract is structured. We see 5% or 10% down in most cases, and there are a few choices for financing as well: a completion mortgage or a draw/builders mortgage. Both of these require different types of approvals and also have different rules.

The ‘approval’ from the bank is actually a ‘pre-approval’ done with the rates and terms that are applied today. The contract is closed, the first down payment is paid, and then the builders are able to release the lot from the bank in order to start the build.

In most cases what happens then is the build is started with the ‘pre-approval’ letter in hand and they use the funds from the down payment to start paying for permits, materials, and all the other costs.

What happens next is the exciting part today, because they will then ask for the actual mortgage approval about 45-60 days out from the possession date. Why this is exciting in today’s market is the fact that 10-12 months from the pre-approval means that there will be about 8 or 9 bank announcements about the Bank of Canada rates.

Circling back to earlier in this blog, we now know that more than likely the rates will be lower, possibly much lower than what you were approved for today. This can unlock a higher amount of funds that you will be approved for which could enable you to add on the things that you might have been worried about at the start of the build, a finished basement, a pool, additional upgrades, etc. We could not have written this early this year because of the uncertainty, but today we feel like there is hope!

Reach out anytime for clarification on any of these points, I can be reached at 204-799-3951