Did you ever wonder how builders are able to offer lower interest rates on new builds? If so, you’re not alone. Builders are able to offer lower rates by raising the price of the house and using the extra money to buy down the interest rate.
For example, instead of paying $300,000 for your new home, the builder would inflate the price to $309,000 and use the extra $9,000 to buy the rate down. Since most builders have partnerships with lenders, they are able to stay in control of the transaction and minimize any potential appraisal issues.
Clearly this arrangement benefits the builder as it allows them to show a higher sales price while using below market interest rates to attract potential buyers. As a buyer, be aware this greatly impacts your ability to resell the property without taking into account the $9,000 used for the rate buy down.
Financing incentives are one time deals that benefit builders and cannot be passed on to future buyers. The only way to benefit as buyer is to stay in the home long term, (usually 8-10 year plus) and not refinance the original loan. Financing incentives offered by builders are legal and ethical and offered by most production builders.
The important thing to keep in mind when financing your new build is to understand the impact these incentives will have on your property when it comes time to sell.