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Watch Out for the Old ‘No Mortgage Payments for a Year’ Gimmick


I came across a promotion today from a home builder out in Arizona. The press release mentions that the company is offering the “largest incentive for new homebuyers in its history.”

The details are as follows: Simply purchase a new home in X development before Christmas (yes, it’s your special gift from Santa) and the builder will pay your mortgage for the first year.

It’s being referred to as a once in a lifetime opportunity, one that can’t possibly be passed up. But that’s where the problem lies.

The fact that these types of offers are springing up again is a sign that trouble is brewing in the once white-hot real estate market, one that now seems to have run out of steam.

As I’ve noted before, it’s no secret that home price appreciation has already begun to recede in many parts of the country. No, home prices aren’t necessarily dropping, but the rate at which they appreciate is falling.

Some markets actually are down year-over-year, and definitely month-to-month, which could signal a shift after two solid years of appreciation. Fannie is already slashing max cash-out LTVs to mitigate risk.

And now we’re seeing incentives from home builders, along with outright price cuts.

For those offering incentives, you still have to pay full price for the home, which might be too expensive nowadays, but you’ll get stainless steel appliances, or granite countertops and fancy cabinets.

Better yet, you won’t have to make mortgage payments for 12 months. But is it actually a good deal, or just smoke and mirrors?

No Free Lunch (or Free Mortgage)

Well, the home builder has properties starting at around $275,000. So assuming you put down 20%, your mortgage payment (not including taxes and insurance) would be roughly $1,050 on a 30-year fixed.

Over 12 months, you’re looking at $12,600 in potential savings. The question is whether you’re overpaying for the property by more than that. And that’s where you’ll need to do the math.

Nothing is free, as we all know. There is no free lunch and no free mortgage.

Sure, it’s great not to have a mortgage payment every month, especially after buying a home and maybe feeling a bit depleted. But perhaps that property should really only cost $250,000. Or even less.

Worse yet, maybe you shouldn’t even buy that house, let alone any house at the moment. Is rushing into a major decision like purchasing a home before Christmas a wise move?

You can’t blame the builder for trying to drum up business with a unique offer like this, especially during a historically slow time of the year, and as home prices slow.

But you do need to be skeptical and avoid jumping in because of it. If you were already interested in buying in the area, it could be icing on the cake. If you’re thinking of buying because of it, you might want to reassess.

Let me put it this way. If home prices were cheap, there wouldn’t be any incentives aside from the home being a bargain itself. And you’d face some stiff competition.

The good news is you can probably negotiate a lot more than you could in the past.

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