New Home Trap

In today’s video, I’m talking about new home construction. One thing that I am seeing is that many of these home sites are offering big reductions on interest rates. They are basically buying down a few points on your rate as an incentive to use their in-house lender and buy from their portfolio.

It sounds great, especially since many buyers are concerned about the high interest rates right now. Some of these builders are even offering 2 – 4 points or more to entice buyers. It’s hard to compete against an offer like that, especially when a large portion of available inventory is in these new neighborhoods.

Interest Rates, Property Taxes, and Other Considerations

But there is a big thing that needs to be considered if you are thinking about buying a new home: the property taxes. They can be over 2%! Tax rates are different based on location. The standard tax rate we use for pre-approvals is 1.25%. If a new home site has a 2% rate, then it’s a big difference – especially if the home is priced at $800,000 or more.

Even though you are getting a break on the interest rate, you will still have high property taxes to deal with. Fast-forward a few years… you always have the option to refinance a house to bring down the interest rates. I looked at the numbers assuming a price point of $800,000, and to get a house with a lower tax rate you are probably looking at a savings of around $400 – $500 per month. If you can refinance, then it offers even more financial benefits in an existing home (vs being stuck in a new build with higher tax rates).

Every Situation is Unique

To be clear: I’m not hating on new construction. In fact, the last house my wife and I bought was new construction. There are many lifestyle benefits from new construction, such as the modern features, move-in ready, and more. Remember: there isn’t a one-size-fits-all when buying a house.

But when you are looking at buying a home, it’s essential to look at all of the factors that will affect your financial situation. If you have questions about your financing options, then feel free to reach out to me any time.