The "incentives" long familiar to new-car buyers -- bonuses or rebates thrown in to sweeten a sale -- are becoming more common in the new-home market as sales slow and credit continues to dry up. Builders such as Toll Brothers
The good news
Some of the best incentives are free upgrades, when the builder offers to include appliances, landscaping, a swimming pool, or features like hardwood floors instead of basic carpeting. These upgrades, which can save you thousands of dollars, often represent genuine value -- a true discount, rather than a gimmick being paid for via an inflated home price. But watch out for "the catch." Sometimes these upgrades are only available if you accept (expensive) features you might not want or need, or if you finance through the homebuilder.
Watch out for savings that sound huge
"Up to $85,000 in savings!" trumpets a recent D. R. Horton ad for a development in Florida. A Pulte ad in California late last year offered a "$99,000 discount," as well as a host of upgrades and special financing options. The question you have to ask is: Discount from what? When Ford
But when a builder offers a $99,000 discount on a newly built home, are you really buying a $300,000 home for $201,000? Or are you paying $201,000 for a home that's really a $190,000 home spiffed up with marketing smoke and mirrors? In order to understand if you're really getting a discount, you need to have some idea of what the home's fair value is in the current market. Odds are, you're not getting as big a bargain as the advertising implies -- and you may be getting no bargain at all.
Just like car manufacturers, homebuilders have discovered that offering financing to their buyers can smooth the sales process while adding a significant revenue stream to their businesses. And just as with car-buying, sometimes the "factory financing" is a good deal and sometimes it isn't, especially if it's combined with other incentives. A $10,000 "cash back" promotion that requires you to use a builder's lender and pay above-market rates or fees may be no bargain. But as the market continues to soften, more genuine bargains are surfacing as builders with too much inventory turn to "blow-out financing," offering mortgages with below-market rates and reduced costs to buyers who suddenly have a lot more choices.
Consider this, though: The slow home market means that other providers of mortgages are facing tougher times, too. While credit standards are tightening in the wake of well-publicized problems with subprime mortgages, buyers with good credit may find excellent mortgage values from a number of sources. Before accepting that great-sounding deal from a homebuilder's preferred lender, check in with a discount mortgage broker, local banks, and your favorite credit union. You may well find better deals elsewhere. To learn more about finding the best financing, consult our Home Center.
There are great deals out there, thanks to the soft market. But not all deals are as good as they look. If you're offered a complex package of incentives that includes a supposedly favorable mortgage, read everything carefully and look for the catch. If you don't understand what you're reading, paying a real estate attorney to spend an hour or two reviewing the offer could be money well spent. Lastly, don't let a homebuilder tell you that you "have" to use their lender. That's illegal: Federal law guarantees your right to seek financing and related services from independent providers, and a builder who tries to restrict your options is probably pulling a fast one. Caveat emptor, and enjoy your new home!
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