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The percentage of home builders offering buyer incentives in June increased compared to last month. Read on to find out which incentive could save you the most money. 

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It’s no secret that rising mortgage interest rates have put pressure on potential home buyers. But for people who are open to buying a new construction home, there’s at least some relief. In June, 56% of home builders offered buyer incentives, up from 54% in May, according to recent data from the National Association of Home Builders (NAHB).

Home builder incentives can include down payment assistance, a lower mortgage interest rate (called a rate buydown), or even money for upgrades like better cabinets or high-end flooring.

While there’s no guarantee a home builder will offer incentives, when they do, it can sometimes mean significant savings for home buyers.

How builder incentives can save buyers money

One of the best ways for potential buyers to save money with a new construction home is with a mortgage interest rate buydown — and right now, many home builders are offering this incentive.

Last month, UBS analyst John Lovallo told Yahoo! Finance that most new construction home buyers receive a mortgage interest rate below 5%. This is a significant discount compared to the current average interest rate of 6.9% for a 30-year fixed-rate mortgage.

Many home builders are able to offer lower mortgage rates because they have their own financing businesses. And offering a lower rate can translate into huge monthly savings for home buyers.

Let’s assume you’re buying a home for $350,000 at a rate of 5%, with a 20% down payment. Your monthly mortgage payments (not including taxes or homeowners insurance) would be $1,503. That’s $341 less each month than if you received a 6.9% interest rate.

The main downside to these interest rate buydowns is that they are usually temporary. This means that the lower rate may only last for a year or two, and then returns to the original mortgage interest rate.

If you’re offered an interest rate buydown, make sure you know how long it will last. While it has the potential to save you lots of money, you also want to make sure you can afford your home when the interest rate resets.

Focus on what you can control

One incentive potential home buyers may not want to bank on is that builders will lower the price of the home. While price negotiation is often a normal part of the home-buying process, it’s not an incentive many home builders offer right now. According to NAHB, just one-quarter of builders lowered the overall price of their homes in June. And when they did, it was by an average of 7%.

And while you can’t control what’s happening with mortgage interest rates right now, there are some things that are within your power. For one, having a good credit score will help you get the best mortgage rates.

Additionally, if you’re considering a new construction home, shop around. Not all builders offer the same incentives, so it may be best to speak with a handful of builders to see what they’re offering. Builders that are trying to establish new communities may be more inclined to offer incentives.

And finally, create a plan for buying your home so that you’ll be prepared each step of the way. This may include things like taking an honest look at your financial situation, boosting your savings for a future down payment, and getting pre-approved by a mortgage lender.

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