Are Builder Incentives Worth It?

As an extra incentive to purchase a new, home builders often include incentives to the buyer, these incentives can range from a $3,000 closing cost credit to a finished basement valued at $20,000 or more and everything in between.

These incentives almost always come with a catch however; one that few homebuyers stop to think about at the exciting time of signing the contract on their dream home. The catch is this: to qualify for the incentive, the buyer must use the builder's affiliated title and mortgage company.

Home builders are not being generous when they offer these incentives , they often make up all or most of the incentive through above market mortgage rates and title fees.

I purchased a property recently from a builder and spoke to the builder's mortgage company. They offered me an interest rate quite a bit higher than I could get elsewhere plus they wanted to charge me a point (1%). I declined their offer and the builder's incentive because it would actually cost me more to take their incentive with a higher mortgage rate and fees not to mention the higher title company fees.

In this case the incentive was on the lower end of the scale I mentioned above, if they were offering me a $20,000 incentive then maybe I would have taken their incentive and refinanced immediately. Even if they had offered me a $20,000 incentive, I would only net about half that after paying the above-market rates and fees.

A Homebuyer should always compare the builder's mortgage company rates and fees and title company fees against the marketplace to determine if their incentive is worth it. In many cases they are not.

There are currently several class action lawsuits around the country against builders for violating the Real Estate Settlement Procedures Act
(RESPA) because they require the use of a specific mortgage and title company to get an incentive. The outcome of these lawsuits is to be determined, but I hope they make builders think twice before trying to dupe homebuyers with less than stellar incentives.

Posted by Kevin Shipe, an attorney for Professionals Title and Escrow Co. To read more regarding the company please visit their website at http://www.titlepros.com/.