Another Shot at a Cheap Mortgage? Builder Offers 4.25% Rate in Some Cities

The massive building company Lennar has been giving out 30-year mortgages fixed at a 4.25% rate in Denver.

Too good to be true?

No, it’s a real offer, from a company doing what it must to attract customers when it’s so hard to afford a home. Colorado buyers have to close by Halloween 2023 to get the deal. But it’s a sign of the times. Here’s why it’s happening, and how buyers can keep alert for more offers like this.

Why Offer 4.25%? Is There a Catch?

No catch. Lennar is an extremely wealthy company. It can afford to make customers hard-to-refuse offers. And right now, 4.25% would be very hard to refuse.

As our readers know all too well, mortgage rates have absolutely surged. That’s why so many current homeowners can’t sell what they have and buy other homes. Many people’s current rates are around 4% or even lower, so they want to stay out of the market when rates are at the 8% level.

And yes, the average rate for a 30-year, fixed mortgage rate hit 8% in October 2023. Wow…that’s a level most of today’s buyers have never witnessed in their adult lives! And wow…the typical 30-year, fixed mortgage rate was only 3% just two years ago!

Seriously. No wonder rates are scaring off buyers in droves. Lennar knows it, and wants to make deals.

For a home loan today, the monthly payment will be hundreds of dollars less if you can get a 4.25% rate. Lennar knows people want that lower payment. All builders know. So, at the moment, a rate buydown is the #1 incentive builders are advertising. This was unusual in the past, according to D.R. Horton, the most well-funded U.S. home builder of all.

Just goes to show how much leverage wealthy real estate companies have over the buyer’s experience (or lack of it)! With the normal home loan, buying down the mortgage is only allowed up to one percentage point. Only these builders can offer a buydown like Lennar’s. By doing it, they keep prices from cratering, and keep revenue flowing during a dampened market.

Why Would Lennar Pick Colorado?

The Denver housing market could really use a lift right about now. Demand remains depressed, and the new home builders are in a position to get an edge over existing home sellers by offering carrots to certain buyers.

At the same time, new construction is getting much pricier, compared to existing homes. This, too, prompts the builders to lower the bar for buyers.

Denver isn’t the only city Lennar wants to jumpstart. A similar deal, offering mortgages at about 5.3%, is running in Phoenix. And another deal like this has already had a run in Austin, Texas.

So Lennar is essentially bolstering markets that zipped, and then slipped, after Covid struck. The company has a lot of influence on the housing market. It operates in half the states nationwide.

Will There Be More Stunning Deals Like This?

Expect more deals like this from Lennar and other major builders. And expect mortgage companies themselves to offer juicy incentives, too.

Why? Because of the mortgage rate milestone, 8%, that would have seemed preposterous just a year ago. Because buyers are seeing these deals out there now. Because buyers are looking for more.

And there’s yet another reason we expect continued promotions for hopeful buyers. Remember, we’re entering the slow real estate season. That gives us all the more reason to expect companies to invent options: cash back, discount prices, low-rate mortgages… You get the picture.

As Diana Olick reports for CNBC TV (citing Mortgage News Daily), discounts abound where markets have slowed the most. Suddenly in Texas cities like Austin, Jarrell, Gypsum Valley, San Marcos, and Elgin, it’s easy to find homes worth $300K marked down to $250K, and $250K homes discounted to $200K.

How long will the deals keep appearing? Many of the best builder deals will fade away only as the nation’s housing market gets back up on its own legs — perhaps during the seasonally stronger spring of 2024?

Watch this space.

And Another Thing…Zillow Wants to Be Your Mom and Dad.

Now, as we’ve pointed out, given the country’s current financial situation, deeds are staying in the same hands for longer times. That’s a problem. More deeds changing hands means a healthier market.

Companies are now looking for ways to rev up buyers, even in today’s tough market. Zillow’s also getting into the game. Zillow Homes Loans is actually offering free money to encourage buyers.

Yes, the well-known online real estate platform has been giving buyers thousands of dollars to offset their down payments. It’s doing this to bring more renters into the buyer fold.

Zillow is testing this grant model out in Arizona, preparing to offer it nationally. (Only first-time buyers with below the local average income can apply, which puts a de facto $10,000 cap on these grants.) Zillow economist Orphe Divounguy (quoted atTime.com) compares a grant to the help some home buyers get from their parents, so it helps buyers who lack “access to parental home equity.” Who knew Zillow wanted to be the Bank of Mom and Dad?

Successful applicants can buy a house with only a 1% down payment — not the usual minimum of a 3% down that some government-backed loans allow. Zillow tosses in the remaining 2% at closing.

Well, woohoo! Zillow’s giving out free money, even if your parents aren’t! But watch out. There’s risk here for sure. The smaller the down payment, the larger the monthly mortgage payments will be. Worst-case, if you buy a property whose value goes down, your debt can become more than the home is worth.

What Does It All Mean in the World of Deeds?

Most residential deeds are basically stuck in a holding pattern at this time. Who wants to transfer a deed now, if it means giving up a below-5% mortgage rate and getting another home at the 8% level? These high rates are dealbreakers, when you blend them with today’s high-cost market. Regular homeowners just cannot afford to move. Unless, that is, we’re downsizing so much that we can buy another home with cash! This is a major reason why housing supply is stuck right now. The shortage of houses is tempting builders to seize a chance to swoop in with new offerings.

Wherever builders, lenders, and mortgage companies promote incentives for buyers, we can expect a rise in home sale transactions — and that’s good for deed transfers. And we’re here for it — as long as our readers know how to weigh risks and benefits. Deeds.com is committed to promoting real estate literacy, as well as helping people find the right deed for the need.

Supporting References

Lance Lambert for Fortune, republished via Finance.Yahoo.com: Housing Market Affordability Is So Strained That This Fortune 500 Homebuilder Is Offering a Fixed 4.25% Mortgage Rate In Some Communities (Sep. 20, 2023).

Diana Olick for CNBC TV, a division of NBCUniversal, via CNBC.com: Thirty-Year Fixed Mortgage Rate Just Hit 8 Percent for the First Time Since 2000 (Oct. 18, 2023; citing Mortgage News Daily and other industry sources; data also provided by Reuters).

Lennar.com: We’re Here 4 You With a LIMITED TIME Fixed Rate! (in Texas; Jul.-Oct. 2023 promotion).

Lennar.com: Buy New and Buy Now (in Arizona; Sep.-Oct. 2023 promotion).

Oliver Staley for Time USA, LLC via Time.com: The Housing Market Is So Bad That Zillow Is Offering Buyers Free Money (Oct. 18, 2023).

Ashley Sutphin for Realty Times: Zillow Begins 1% Down Payment Program (Oct. 17, 2023).

And as linked.