Interest Rate Locked While Home Is Built
With economists expecting interest rates to increase in 2017 and 2018, many buyers are actively searching for homes so they can lock in their borrowing costs now.
While those who purchase existing homes can secure their interest rate soon after they go under contract, those who want new construction face more uncertainty. In fact, it takes months before a new home is ready and buyers can finalize their long-term financing.
However, with a Zions Bank one-time close construction loan, borrowers get existing home benefits — interest rate certainty and lower closing costs — in the form of a construction loan.
“Getting your rate locked in now and not having future interest rate risk is huge,” says Jeremy Holmgren, regional sales manager for Zions Bank Home Finance. “You can lock your rate in now, and you’re not going to be subject to interest rate increases that can take place between the time construction begins and when construction is completed.”
By Deanna Devey
Well-suited for Custom Homes
While the product is available for a variety of loan amounts, it is particularly well-suited for custom homes that need a jumbo mortgage — a loan for more than $424,100 or $636,150 in high-cost counties. It is for building a single-family detached home as either a primary or secondary residence.
If customers meet the specific lending requirements, Zions Bank can lend up to $2 million with 20 percent down. For loans up to $1 million, the down payment can be as little as 15 percent with no mortgage insurance for qualified borrowers. Holmgren says the costs and rates are competitive, often with no origination fee.
The one-time close is an adjustable-
rate mortgage. For this product, payments will be fixed for three, five, seven or 10 years depending on which option the borrower prefers.
While an adjustable-rate mortgage has more risk than a 30-year fixed loan, Holmgren says there are many factors to consider, including the fact that the average borrower holds a mortgage for “much fewer” than seven years.
“Based on how much lower the interest rate is on this ARM versus a 30-year fixed jumbo, there can be a lot of savings,” Holmgren says. “At the end of the day, I think most people understand it’s still a good deal. The savings over 10 years can be fairly substantial.”
How It Works
“Buyers can use any builder that they choose as long as the builder has been approved by our construction department,” Holmgren says.
The financing is in the buyer’s name and starts as a construction loan. At the time of approval, the county also records the deed.
During construction, the buyer pays interest on funds used. Once the home is complete, with final approval and a certificate of occupancy, Zions Bank converts the loan to permanent financing. At that point, the borrower begins paying interest and principal.
Throughout construction, builders use a draw process and request payment as they complete projects. Zions then pays those bills after the bank, builder and borrower sign off on the work.
“There are always checks and balances,” Holmgren says. “We’ve got a great
product and a phenomenal draw process, and the builders love working with us. And we’ve got the portfolio funds to do as many loans as possible.”