Build don't buy *plus* a real low interest rate

I’m hoping someone has some first hand or verifiable information on this subject.

My brother and sister in law are now ready to purchase their first home. After doing some investigating, they insist that you can build a home though MCI or Dominion homes for less than you can buy an existing home. They also said that, according to reps for these companies, that financing through them is MUCH less expensive than going through your bank or credit union. For example, they claim that on a 30 year loan through MCI or Dominion, your anual interest rates would be as follows:

Plus According to them, you only need 5% down!
Year 1 = 3.1% APR
Year 2 = 4.2 APR
Year 3 = 5.3 APR (fixed for remaining 28 years)

Now,…my credit is pretty good and I just refinanced about 6 months ago and received 5.75 on 30 years (could’ve gotten 5.15 on 15) - A rate I felt was GREAT!

What I can’t figure out is:

  1. Is this in fact true? Can you really build a new home and finance through a builder for less than a bank?

  2. If this is true, why isn’t everyone and their brother building new homes right now?

My thoughts originally were that the 5.3% fixed rate beginning at year 3 was based on the current APR and that it was subject to change based on federal APR when that year comes around.

Does anyone have the straight dope on this?

Well, I could stay in my 'hood and buy a 3/2.5 house for oh … just under $300,000.

Or, I could buy a “new” house (now delayed six months frrrt!) for less than that, and get a 5/3.5 about 20 miles away. So I did (closer to work for me).

The builder is workingwith their own money company, so they work in bulk and probbaly have low failure rate OR high value on that fail rate.

We were told “you can go to whoever you want, but if you don’t get the loan, you lose the house. If you go with our lender, we’ll do almost anything to get you a loan at whatever rate we can”.

So that’s what we’re doing … approved at 6% (5, but they built in a percent for “just in case” on the market). We’ll refi once we move in, to get rid of PMI (we’re only putting 10% down and the house will probably be able to refi at 15% more than we are paying for it) and to go with my credit union.


  1. Will they also loan your brother the money to buy the land on which the home they build will be placed? If not, then the lower interest rate may be because they are being loaned less money, and are therefor not as big of a risk.

  2. You don’t even have to have 5% down to buy a house if you make enough income and want a high enough payment. Most banks will be happy to charge you more interest in return for them even covering the closing costs.

  3. Many people don’t want a “new” home. When you get a new home, you have to landscape it, paint the walls something other than “contractor white”, put up storage in the garage/basement, etc, while slightly used homes have that “broken in” feel.


Be careful on those 2-1-buydowns, they might be more expensive than the year 3 cost they lay out for you.

The real answer, of course, is “it depends.”

I built last year and had been looking to M/I, Dominion, and Joshua (I went with Joshua, FWIW) and they all had very similar deals in place: 2-1 buydowns giving 3.5%-4.5%-5.5% or 2.75-3.75-4.75, with the seller/builder paying the points. Now, you likely can’t get this deal through a normal financer, but you can get almost any other deal out there, not through the builders bank, if you put in the leg work and know your numbers.

In my case, I’m planning on selling in 5-7 years, so I got a 7-1 ARM at 3.75% (interest rate is fixed at 3.75% for 7 years, then it goes adjustable years 7-30, but I don’t care 'cuz I’ll be moved on by then.)

Advise your brother to visit at least two banks/lending institutions and get rates from them. Compare apples to apples all the way down the line. Odds are, though, that they will get a good deal through the builder because of the points they pay on the mortgage, but looking around is a really, really good idea.

Just remember, if you’re looking to buy in a developer’s neighborhood, those houses are literally thrown together. The concern of the builder being getting it built quickly, so the crew can get to work on the next one, rather than getting it built well. Yes, these houses are built to code, but building codes aren’t what they used to be.

Disclaimer: I really have no first hand experience in the home building industry. I’m just parrotting my brother who has been building houses to order for the last fifteen years, and who will not be coming to my new house for a year. I like him, I just have no desire to hear him lecture again about " g-d jackleg construction".


I recently built/bought a home with Dominion Homes near Columbus. Since you speak of them, I assume you live in either Columbus or Louisville ( those are Dominion’s markets ). February will be my sixth month in this home and I couldn’t be happier. My home is the Jefferson model from the Independence series and is legally classified (straight from my mortgage documents) as a single-family home in a condominium community.

To answer your questions:

  1. Yes and no. Do you want to beat the bank upfront or in the end? You be the judge. Before signing my purchase agreement, I called three local banks and none of them could offer me a mortgage like this. Their interest rates and closing costs were higher and they didn’t offer the same benefits. I have no doubt that I could not have afforded this house without the financing deal I received (see below). Additionally, I am not stupid. Dominion must be making a good chunk of change on the deal, so I would imagine that I am paying more in the end. I plan on this being a long-term stay of at least 5 years, not 50. Dominion developed the land, built the house, sold the house to me, financed the mortgage, and had their subsidary Alliance Title close the deal. At closing, 99% of their mortgages are sold to National City. They keep their costs down by doing everything and then washing their hands of you right away.

My finance deal:

Pay $500 for my purchase agreement. This contract specified all the details of my house and the mortgage I selected based on a 5.375% rate locked for up to 120 days. At this point my home had already begun construction, just the foundation in fact. The Independence series for Dominion allows little flexibility as far as options and colors are concerned. I had to select which floor plan I wanted and find a lot that had already been designated to build that plan in the pre-determined color scheme I wanted. Dominion has a picture in their head of what they want the outside of this neighborhood to look like and you can’t do much to change it.

After that you will go through a formal mortgage application process that costs you $125. Nothing out of the ordinary here.

And that’s it for before-closing costs!

My mortgage is a 30 year FHA fixed-rate loan at 5.375%. The first two years Dominion buys-down the interest rate to 3.375 and 4.375, respectively. I paid $0 down. How? FHA requires a minimum of 3% down, this requirement cannot be waived. You can, however have a certain amount of money gifted to you. So on the day of my closing, Dominion writes a check for 3% of my house to Nehemia. Nehemia is a not-for-profit organization. Nehemia then (still on closing day) writes me a check for 3% of my purchase price that I immediately sign-over to Alliance to close the gap between my mortgage amount and the purchase price. Basically, you see all these checks at closing going across the table, but you can’t have them! My out-of-pocket closing costs were $0 too. A misconception of this program is that you are not charged closing costs. That’s not true, Dominion rolls the closing costs into your mortgage so you ARE paying them. My mortgage does include PMI insurance as does any FHA with less than 20% equity. It also includes 6-month layoff protection that’s paid in-full by the mortgage-owner. The mortgage is fully assumable and does not have early payment penalties. Make sure you compare all aspects of competing banks’ mortgage programs.

At the end of closing, I was refunded the $625 that I previously spent and was given the keys to the castle. Not bad. The worst part about closing is all the signing you do and when they disclose to you the entire cost of your mortgage if you were to make 360 payments. :eek:

Why do this? In my case, I couldn’t afford to save the huge downpayment most new homeowners make (20%). I could however, afford the mortgage payment at that time with my earnings continuing to increase. Last year I had actually been in the process of saving for a downpayment when I decided to build/buy with Dominion. If I had continued down that path I would have had to nearly empty my bank account, buy a smaller condo or home (probably older) and have nothing on-hand in the event of an emergency. It enabled me to get into a house sooner than traditional methods and in my opinion, safer. Now I still have that money in the bank and warranties on everything from the range to the roof. I bought some nice furniture with a bit of that money and am now happy earning equity instead of burning cash with monthly rent.

  1. Well they have been building like crazy so maybe everyone is buying. Just have your brother and sister-in-law decide what is important to them and what exactly they want.

The downside to my deal: PMI, condo-association ($46/month), less flexibility.

If your relatives are in the Columbus area, I would recommend my Dominion sales representative. She was a life-saver and walked me through everything. Let me know if they’re interested.

Anyways, that’s my take on it. :cool: Best of luck,

P.S. As far as people knocking the quality I can only attest to what I’ve experienced. I haven’t had any major issues yet and we’ve seen really bad weather so far this winter. This will be my sixth month and I’m starting to get some drywall cracks and nail pops. As I understand it, this is all pretty normal stuff with new houses as they settle. Another nicety about my builder is that they offer me a house-call up to one year from closing. In this house-call I can have them repair all that stuff and even things I may have missed at the walk-through on closing. For example, a drywall crack will be repaired properly and the entire wall repainted white unless you painted over it. In that case they just repair the crack and leave you to paint over the mud. Hey that’s less work for me!

With a bank loan, PMI can usually be avoided even in a “no money down” situation. The common method is to have an 80% morgage simultaniously with a 20% loan (either a second morgage or a home equity line of credit). They’ll usually charge slightly higher interest on the 20% loan, but the interest you pay is tax deductable, wheras PMI isn’t, and the homeowner usually comes out ahead on this.


Great info dzldude!

This is for the Columbus area. It’s nice to get thorough 1st hand information. Many thanks!

mister_me -something else, if they’re going to build, one more thing to consider: joint builder neighborhoods.

I’m in a Joshua & Dominion plat (near Easton) and it’s really, really nice not having every third house look just like the other one. I don’t know how many areas are doing this, but it’s certainly a factor that appealed to me when I was looking.

And to ditto what LordVor said, I put 5% down, got a primary mortgage for 80% (at 3.75% interest) and a second one for 15% (at 5.25%). No PMI = happy dance.

If they are looking at Dominion, I have a very close friend that is running one of their areas, who is engaged to one of their building supervisors, that I could put them in touch with so they could get a really good rundown of things. She is the one that actually turned me on to Joshua, so while they would certainly get a lot of Dominion info, it would be fair and even regarding all builders.

Just a thought.