D.R. Horton was offering that ultra-low rate last month on certain new homes, a salesperson confirmed this week. Today, the industry giant and its homebuilder peers are still promoting attractive terms, with fixed rates as low as 3.99% and with buydowns, down to 1.99%.

Jeremy Schachter, a Phoenix-based branch manager with Fairway Independent Mortgage, is seeing super-competitive rates from builders and thinking about them when talking to clients. 

"[If] new builds are in their mix to look at for home purchase, I always recommend contacting the builder's preferred lender, just so I don't waste my time as well as their time, just because they give incentives that are usually hard to beat," he said. 

The low rates can be misleading, Schacter said. Builders typically achieve them through temporary buydowns and forward commitments, in which they buy bulk financing at a particular rate — tools that some brokers or other loan officers across the industry can't access. 

A 4.99% fixed-rate from a homebuilder is more common, while some will set a smaller portion of their inventory at 3.99%, said Dan Pena, president of partnerships lending at Loandepot, which has numerous joint ventures with homebuilders. 

"You are seeing the ultra-low ones, not as prevalent as I think people think are out there," he said. 

Homebuilders are upping their incentives

Pena said he's heard the discourse around the steep competition by some of the nation's biggest homebuilders going lower on rates. In recent weeks, homebuilder executives in earnings calls have discussed the impacts to their bottom lines from greater incentives, as the housing market remains relatively sluggish amid wider affordability challenges. 

D.R. Horton leaders last month told investors in an earnings call they used buydowns on 73% of closings in the recent quarter, including more buydowns on adjustable-rate mortgages, and they're leaning more heavily into their 3.99% offering. 

"For our buyer, again, it still comes back to the monthly payment," company president, CEO and director Paul Romanowski said during the call. "And the most attractive monthly payment we can put them in is with a lower rate."

In October, 65% of builders reported using sales incentives, according to the National Association of Home Builders. Additionally, 38% of builders reported cutting prices last month, with an average price reduction of 6%. 

Why builders slash rates more than prices

U.S. Federal Housing Director Bill Pulte last week posted a quote to social media stating builders "are excessively using buydowns to keep prices higher than they should be." Freddie Mac representatives met with Loandepot this week and asked about the issue, Pena said. 

Loandepot is fighting for builders to stop lowering prices, the executive said, and there's "no way" they're raising sales prices at the moment. In further explaining the sales tactics to National Mortgage News, Pena echoed Romanowski's comments about lower monthly payments. 

"Cutting the sales price by $20,000 might get somebody in the door, but it doesn't help them with their monthly payment as much," he said. "And secondly, you've just created a new (sales comparison) for every resale and for every new home you sell in that area." 

Alternatively, it's beneficial for borrowers to secure that discount in situations where they can't secure a lower rate, Schachter said.

"You can refinance once rates come down, so you have a lot more equity in the house right off the bat if you get a reduction in the sales price versus taking whatever incentives they're offering for a low rate," he said. 

Will attractive buydowns stick around?

Pena, a longtime veteran of the builder space, explained builder-lenders have securitization considerations, as capital markets investors have parameters around how many loans can have temporary buydowns.

Some builder executives in those recent earnings calls said they anticipate incentives to run higher than usual in the near future but expect them to taper off as market conditions stabilize. The Loandepot leader questioned how competitive buydowns would be if interest rates at-large were to decline and even the playing field. 

Schachter expects interest rates to stay around the same level, even if the Federal Reserve moves forward with rate cuts this winter. He offered some advice for buyers mulling new home purchases.

"Your real estate agent sometimes can find resales that might be lower in price with a similar layout," he said. "So if you're looking at new builds, just make sure you look at all avenues."