Builders Lure Buyers With Incentives

The hot housing market has created a wave of new homes and lots of builders eager to sell them. It pays to bargain for favorable terms, especially if you buy into the development at the right time, according to Jim DeBoth of The Journal Newspapers.

"Lender-paid buydowns" is the industry term for a type of loan with below-market interest rates and low down payments. If you have good credit but not so much cash, your builder may arrange for this type of financing. You pay less in the first year and make up the difference in later years with a rate slightly higher than the prevailing interest rate. For example, let's say the market rate is 6.6 percent. A lender will select a target interest rate of 7.0 percent. In a 2/1 buydown, you might pay 5 percent interest the first year, 6 percent the next year and 7 percent during the rest of the loan term.

Don't just take the builder's mortgage terms, however, shop around on your own and make sure you're getting the best deal. There's only one scenario that could limit your options. If the builder can be perceived as paying the loan fees with a rebate, he can insist that you go with his mortgage company. Otherwise, he cannot do anything about your choice of a mortgage company.

In some cases, timing is everything. The best time to catch a builder is right at the beginning of a new housing project, or at the end when the last homes are being sold. That's when the builder may be most motivated to sell. At the beginning, the last thing a builder wants people to see is a series of empty homes. He may be willing to make concessions to sell the first few homes. Ask the builder to pay closing costs or to pay the first three payments. Toward the end, builders may want to get rid of the remaining, unsold homes at lower prices.

Another time to make hay on your home purchase is when the housing market slows down a little. That's when builders frequently offer cash rebates, sometimes as high as $6,000 on $250,000 homes. The cash can be put toward closing costs or other purchase costs.