With these interest rates, is now the right time to build a home?

With these interest rates, is now the right time to build a home?

When considering a significant investment like a custom home, timing is everything. With today’s interest rates, you might question whether building your home now is the best decision. These rates mean financing costs are trending higher than in previous years.

However, building in this market isn’t necessarily a bad idea – in fact, depending on your goals, the timing could be right for you. Timing is particularly critical for custom homes, given their longer planning and build cycles compared to standard homes.

When determining the timing of your project, there are several considerations for building a custom home with high interest rates.

The cost of waiting

While it’s tempting to wait for rates to drop, there’s no guarantee this will happen soon. Rates could stabilize or remain elevated due to inflation, administration changes, or other economic factors.

Moreover, a delay could mean that land and labor costs continue to rise. This could increase the overall price of your custom home. When high rates discourage others from building now, some builders may have increased availability, leading to more competitive pricing on labor and materials. This situation could potentially offset some of the interest rate burden.

Building equity sooner

While some experts expect rates might stabilize or decrease slightly in the coming months, there’s no guarantee. Rates may remain elevated or even rise due to ongoing inflation and economic fluctuations. Locking in a rate could provide peace of mind against future increases.

Owning your home sooner means you’re investing in your future now, not later. Every mortgage payment contributes to your equity, providing stability and a valuable asset in the long run.

Custom homes are valuable because they are built with your personal needs in mind and are less likely to require costly renovations down the line. This long-term perspective can make building a custom home a sound financial decision, even in a high-rate environment.

Budget control with custom homes

One key advantage of building a custom home in an environment with high interest rates is that you have significant control over the budget. Unlike purchasing an existing home where costs are often fixed, building a custom home allows you to make decisions based on your budget and prioritize the features most important to you. From choosing materials to selecting finishes and optimizing floor plans, you can make adjustments throughout the process to align with your financial goals.

For instance, if the budget becomes tight, you can allocate funds toward essential elements first and plan for upgrades or additions over time. This flexibility lets you avoid unnecessary expenses while still achieving a home that reflects your vision. By collaborating with builders and designers, you can create a cost-effective plan that fits your lifestyle and adapts to potential changes in the financial landscape.

This control is a unique benefit of custom homes, allowing you to strike a balance between quality and cost.

Strategies to mitigate high rates

If you decide to build, consider these strategies to minimize the impact of high interest rates:

• Interest rate buydowns: Some lenders allow you to pay a fee upfront to “buy down” your interest rate, which could reduce monthly payments over the life of the loan.
• Adjustable-rate mortgages (ARMs): If you’re open to an ARM, which starts with a lower fixed rate for a set period (such as 5 or 7 years), you could benefit from lower initial payments. However, remember that ARMs carry the risk of increasing rates after the initial period.
• Phased construction: If budget constraints are a concern, you might consider a phased approach — building the core essentials now and leaving room for expansions or upgrades in the future as rates stabilize.
While high interest rates pose unique challenges, building a custom home now can be a sound investment if approached thoughtfully. By taking advantage of potential price breaks from builders, controlling your budget through custom design choices, and leveraging financing strategies like interest rate buydowns, you can make building a custom home financially viable, even in a challenging market.