The best time to buy a home is when interest rates are at their lowest, right? You might be surprised to know that, when higher interest rates are high, it can actually be a great time to buy a new home.
There is a lot of speculation about when, or if, interest rates will decline this year. With so many potential homebuyers patiently waiting for the Fed to lower rates, home builders are offering incentives that can help buyers avoid playing the waiting game.
By purchasing a new home from a builder that offers a mortgage buydown, you may be able to get at a lower interest rate than you would buying an older home.
Interest Rate Buydowns Benefit Buyers and Builders
When interest rates are high, many potential homebuyers shy away from buying a home. This often leads builders to offer incentives to get people into their new homes sooner. There are several incentives home builders offer that can help new buyers, from design credits to landscaping credits, closing credits, or mortgage buydowns.
A mortgage buydown, or interest rate buydown, is when the builder pays your lender to lower your interest rate for a set period of time.
In rare cases, the builder may buy down the interest rate for the entire term of the mortgage. More commonly, builders will buy down the interest rate for the first 1–2 years of the home loan.
These buydowns can be structured in a few different ways. With a 1-0 buydown, the interest rate is 1% lower for one year before returning to the initial rate offered by your lender. With a 2-1 buydown, your interest rate is 2% lower in the first year, then 1% lower in the second year, before returning to the initial rate for the remainder of the loan’s term.
How Buydowns Can Make New Homes More Affordable
For example, say a lender has approved you to borrow $350,000 at an interest rate of 6.5% to purchase a home. You’ve narrowed it down to two options listed at the same price: an existing home and a brand new home.
For the older home with no buydown, your monthly payment would be over $2,200 on a 30-year mortgage.
On the new construction, the builder is offering a 1.5% interest rate buydown for the first two years. This would lower your payment to just under $1,900 for the first two years of the mortgage. Then, your interest rate will go back to 6.5% and the payment increases.
In this example, going with the new home would save you over $300 per month, and over $4,000 per year, in interest. Those savings can be especially helpful for a new homeowner. It may help you furnish the new home, pay down other debts, or save for the future. When the interest rates come back down, you’ll have the option to refinance at a lower fixed rate.
Don’t let high interest rates be the thing that keeps you waiting to buy a home. Be sure to research home builders—such as Highland Homes, Lennar, and Perry Homes, VIDA San Antonio’s builders—and ask about the incentives they’re offering. With the right terms, you may find that buying a brand new home is your most affordable option.
View available homes at VIDA to explore your options for purchasing a brand-new home in a thriving Southside San Antonio community.