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Buying a new home is a major milestone, and choosing a new construction home makes it even more exciting. If you're considering a new construction home, understanding how builder incentives work can help you save thousands and feel more confident in your investment.
What Are Builder Incentives?
Builder incentives are special offers designed to make purchasing a new home more accessible and affordable. The following are 4 incentives that builders commonly offer, and you can learn more about each below:
Closing Cost Assistance
One of the most common builder incentives is closing cost assistance. This means you'll receive credits toward closing costs, which are those out-of-pocket expenses that come at the end of the buying process. These can include fees for the loan, appraisal, title insurance, and more. When you finance through a builder's in-house mortgage lender like M/I Financial, LLC—a full-service mortgage lender and a wholly owned subsidiary of M/I Homes—you may qualify for significant closing cost assistance, helping reduce the amount of cash needed at closing.
Mortgage Rate Buydowns
Another valuable builder incentive is a mortgage rate buydown, which can help lower your interest rate, either temporarily or permanently. A reduced rate means a lower monthly mortgage payment, giving you more flexibility in your budget and potentially saving you tens of thousands of dollars over the life of your loan.
There are 3 main types of mortgage rate buydowns:
1. Temporary buydowns
Temporary buydowns ease you into homeownership with lower initial payments. They are are mortgage financing tools that reduce your interest rate for a limited time at the beginning of the loan term, usually the first 1–3 years. The reduced rate lowers your monthly mortgage payments temporarily, making the loan more affordable during those initial years. Your home builder pays an upfront fee at closing to cover the interest difference.
Common Types:
- 1-0 Buydown: Interest rate is reduced by 1% for the first year only.
- 2-1 Buydown: Interest rate is reduced by 2% in year one, 1% in year two, then returns to the full rate in year three and beyond.
- 3-2-1 Buydown: Reduces the rate by 3% in year one, 2% in year two, and 1% in year three.
2. Permanent rate buydowns
A rate buydown is a financing strategy where a builder like M/I Homes pays upfront points at closing to reduce your mortgage interest rate for the entire life of the loan. This results in lower monthly mortgage payments from day one through the end of your loan term—typically 15, 20, or 30 years.
Here's how it works:
| Loan Amount | Original Interest Rate | Discount Points | New Interest Rate | Monthly Payment | Monthly Savings |
|---|---|---|---|---|---|
| $3,000 | 6.75% | 2 | 6.25% | $2,920.57 | $79.43 |
- Loan Amount: The total amount borrowed.
- Original Interest Rate: The initial interest rate before the buydown.
- Discount Points: Each point costs 1% of the loan amount and typically reduces the interest rate by 0.25%.
- New Interest Rate: The reduced interest rate after applying the discount points.
- Monthly Payment: The new monthly mortgage payment based on the reduced interest rate.
3. Extended rate locks
Rate locks protect your interest rate while your home is under construction. Essentially, it allows you to secure today’s mortgage interest rate for an extended period—typically anywhere from 90 to 360 days—before your loan closes. This is especially helpful if you’re building a new home or buying one with a longer closing timeline.
Home Upgrades
Personalizing your new home is one of the most exciting aspects of building it. Home builders often offer free or discounted home upgrades, allowing you to enjoy premium features without increasing your base price. These upgrades not only enhance your daily living experience but also add long-term value to your home.
At M/I Homes, upgrades are categorized into design options and structural options. Design options include features such as quartz countertops, dual-sink vanities, upgraded flooring, luxury tile, and upgraded kitchen appliance packages. Structural options, on the other hand, encompass additions like pools and lanais in Florida, morning rooms, extra bedrooms, finished basements, and more.
Discounted Home Pricing
One of the most compelling incentives that builders offer is discounts on the price of a Quick Move-In home. By providing discounts, builders make their homes more financially accessible, allowing buyers to save a significant amount of money on their purchase.
This incentive is especially appealing in today's competitive housing market, where every dollar saved can make a substantial difference. Discounts not only help buyers reduce their upfront costs but also make the prospect of owning a brand-new home more achievable.
Bottom Line: Builder Incentives Help Make Homeownership More Attainable
In this market, we know that home affordability is top of mind. That’s why many of the top home builders like M/I Homes offer incentives that reduce upfront costs, lower monthly payments, and help you feel great about your purchase.
Builder incentives vary by community, timing, and available homes, so it’s important to talk to an Internet Sales Manager early in the process. They’ll walk you through available builder incentives near you and introduce you to a Loan Officer at M/I Financial, LLC who can run the numbers and help you see how much you can save.
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