How to Finance a New Home

Tips and insider secrets to getting the best financing deal

By Bob Weinstein, FrontDoor.com | Published: 3/17/2009

Best-Kept Secret Financing Tips from the Experts

According to Sichenzia, look for programs that will save you cold hard cash. Look for builder-financed products with a 5 percent to 5 1/2 percent rate; minimal down payment; and seller concessions in the form of buydowns. "Buyers can get this kind of a deal if they can prove verifiable, long-term employment and a good credit rating," he says.

The National Association of Home Builders in Washington, D.C., reported that 75 percent of all builders and developers are offering incentives, many of which simplify financing and save buyers money in the bargain. They include:

• First year of mortgage payments.
• Limited opportunity to take advantage of up to 95 percent financing.
• Deferred mortgage payments. However, this can be a mixed blessing because interest continues to accrue on the deferred payments and at the end of the grace period, the deferred amount will be added on to the balance of the mortgage.
• Payment of closing costs. Buyers could potentially save thousands of dollars, depending on the cost of the house, location and type of mortgage.
• Cash incentives. Many builders are paying homeowners' insurance polices or taxes for up to a year.

According to David Reed, president of CD Reed Mortgage Bankers of Austin, Texas, and author of "Financing Your Condo, Co-Op or Townhouse," guarantee or lock in a mortgage rate. Here's why: By locking in an interest rate, buyers guarantee that the rate will be reserved for them when they close on the deal. If not locked in, they're at the whim of market conditions and obligated to take whatever's available. Reed adds that lenders take locks very seriously. If buyers lock in a rate with lenders, the lender reserves that rate for them.

To get more free information about mortgages and lending institutions, check out the following nonprofit organizations:

• Neighborhood Assistance Corporation of America: a nonprofit community advocacy and homeownership organization.
• NeighborWorks America: a national network of more than 240 community development and affordable housing organizations.

According to Tracey Rumsey, a mortgage loan officer in Bountiful, Utah, author of "Saving the Deal -- How to Avoid Financing Fiascos and Other Real Estate Deal Killers" and a staff writer for MortgageCurrentcy.com, look into these often overlooked sources:

• New construction tax credits. Not to be confused with the First Time Homebuyer $8,000 tax credit that was just enacted by the American Recovery and Reinvestment Act (ARRA) of 2009. These are state tax credits specifically for existing new-construction homebuyers. States are rolling these tax credit allocations out right now to move existing new construction inventory. California was the first to implement the tax credit and is offering up to $10,000. Many states are pounding out legislation offering similar incentives.
• VA loans. Offers 100 percent financing. Veterans can score big by using their VA eligibility to buy a new home. With no down payment requirement and no monthly mortgage insurance, it's hard to beat this option.
• State housing agency loans. First-time homebuyers should always check out their state's housing agency loan programs. Most states offer 100 percent to 103 percent financing, allowing buyers to finance their closing costs as well as the full purchase price of the home. Some states even waive the first-time buyer requirement when the home is purchased in a certain area.

NEXT: What a real estate attorney wants you to know about buying a new home >>

More...

• How to Buy in New Construction
• Things I Wish I'd Known Before Buying a New Home
• First-Time Homebuyer's Guide
• House Hunters Homebuying Guide
• Home Finance Guide

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