Mortgage Rates for New Homes Are Typically Lower, New Research Finds

Homebuyers who purchase newly built homes are typically saving about half a percentage point on their mortgage rate, likely due to incentives from homebuilders, new research has found.

Last year, the average mortgage rate for buyers of new-construction homes was 6.1%, compared with an average of 6.6% for buyers of previously owned homes, according to the Realtor.com® economic research team’s New Construction Report released on Thursday.

The finding, derived from deed data, shows bigger interest rate savings for new-home buyers than previous surveys of homebuilders had indicated, suggesting that many builders are quietly offering mortgage rate buy-downs that are larger than advertised.

The half-point reduction in interest rates translates to savings of about $105 a month for mortgage payments on a $400,000 home, assuming the buyer put 20% down on a 30-year fixed home loan.

Recent mortgage application data shows that affordability-strapped buyers are keenly sensitive to even small movements in rates, likely making the savings from a half-point rate reduction a significant purchase incentive.

The main reason that mortgage rates are lower for new homes is that builders are offering below-market rates to buyers as an incentive to close deals, primarily through mortgage rate buy-downs, says Realtor.com senior economist Joel Berner.

A buy-down involves paying an up-front fee, known as points, to secure a lower rate, either temporarily or over the life of the loan.

While anyone can buy down their mortgage rate when taking out a loan, the tactic is popular with new builds, because homebuilders often cover the points fee as a marketing incentive for buyers.

“Some builders have in-house financing wings, and others have close relationships with lenders that allow them more flexibility than existing-home sellers have when it comes to using mortgage rates as a marketing tool,” says Berner.

The half-point rate reduction for new-home buyers in 2024 ties with 2023 for the biggest mortgage rate saving for new-home buyers in at least a decade, according to the report.

New-home buyers saw virtually no savings versus existing homes during the period of ultralow interest rates from 2020 to 2021, indicating that few builders were offering buy-downs during that period.

“What’s driving the gap wider is simply that mortgage rates are higher, which makes below-market rates more attractive and more effective in getting new builds sold, so more buy-downs are being offered,” says Berner.

After spending more than a decade below 5%, mortgage rates have remained above 6% since late 2022, contributing to some of the worst affordability conditions for homebuyers in more than 40 years.

Since the beginning of this year, rates have hovered in a narrow range above 6.6%, most recently averaging 6.76% for the week ending May 8, according to Freddie Mac.

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