One builder offers to buy down your rate or cover your closing costs. Another simply quotes a lower price. Builder incentives can be worth real money, but each one lowers a different number, so offers are hard to compare until you know what each one does.
Key Takeaways
- Builder incentives were common in September 2026, when 66% of builders reported using sales incentives and 38% cut prices.
- Each incentive lowers a different number. A price cut lowers what you borrow, a rate buydown lowers your interest rate, and a credit lowers the cash you bring to closing.
- Fannie Mae caps builder contributions on conventional loans for a primary or second home. The limit is 3%, 6%, or 9% of the lower of the sales price or appraised value, depending on your loan-to-value ratio.
- A temporary rate buydown ends. Under Fannie Mae rules for conventional loans, the reduction cannot exceed 3% and the rate can rise by up to 1% a year. You are also qualified at the full note rate.
- If you’re building, ask who pays the construction loan interest during the build. Value Built Homes pays it through its permanent Free Construction Financing program.
- To compare any offer, ask what the home would cost with no incentive at all. A lower price lasts for the life of the loan.
Builder Incentives Compared: What Each One Lowers and What to Check
The table below compares six builder incentives side by side. Each one lowers something different: the amount you borrow, your interest rate, the cash due at closing, or what you pay during the build. The last column is what to confirm before you count the savings.
| Incentive | What it is | What it lowers | What to check |
|---|---|---|---|
| Price reduction | The builder lowers the sales price. In September 2026, 38% of builders cut prices, by 6% on average. | The amount you borrow, for the life of the loan | Whether the cut applies to the home you want or only to finished inventory |
| Closing cost credit | The builder pays part of your closing costs and prepaids. | Cash due at closing | On a conventional loan the credit is capped at 3%, 6%, or 9% of the lower of the sales price or appraised value, depending on your loan-to-value. It cannot go toward the down payment |
| Permanent rate buydown | The builder pays discount points. One point equals one percent of the loan amount. | The interest rate, for the life of the loan | The rate you would get with zero points. The cost counts toward the same contribution cap |
| Temporary rate buydown | The builder funds a lower rate for the first years of the loan. | Early monthly payments only | The full note rate. The reduction can be no more than 3%, it can rise by up to 1% a year, and you are qualified at the full rate |
| Design or upgrade credit | An allowance toward options and finishes. | What you pay for upgrades | What is standard without the credit, and how your lender will treat the credit on your loan |
| Builder-paid construction interest | The builder pays the interest on the construction loan while the home is built. This is Value Built Homes’ Free Construction Financing. | What you pay out of pocket during the build | The program terms, directly with the builder |
The loan limits in this table are Fannie Mae rules for conventional loans. If you’re using another loan type, ask your lender what applies.
What Are Builder Incentives?
Builder incentives are concessions a home builder offers to help a buyer afford a new home, such as closing cost credits, rate buydowns, and upgrade credits. Some builders cut the price instead, and some do both. Each one lowers a specific cost, such as your interest rate or the cash you bring to closing.
In September 2026, 66% of builders reported using sales incentives, up from 63% in August. That same month, 38% of builders cut prices, with an average cut of 6%.
Rate buydowns and builder-paid construction interest have their own sections below. The other three types are simpler:
- Price reduction: The builder lowers the sales price, so you borrow less for the life of the loan.
- Closing cost credit: The builder pays part of your closing costs and prepaids. These credits come with conditions, and our guide to closing costs on new construction homes explains how builder and lender credits work.
- Design or upgrade credit: The builder gives you an allowance toward options and finishes. A credit only matters against what is already standard, so check what’s included in a new construction home first.
How Rate Buydowns Work, and What Happens When a Temporary One Ends
A rate buydown lowers your mortgage interest rate, either for the life of the loan or for the first years only. A permanent buydown is paid for with discount points. A temporary buydown is a subsidy that runs out, and your payment rises to the full note rate when it does.
Here is how the two compare:
- Permanent buydown: The builder pays discount points, and one point equals one percent of the loan amount. Points lower your interest rate in exchange for paying more at closing, so a builder who covers them gives you the lower rate without the extra cash.
- Temporary buydown: The builder funds a lower rate for a limited time. In a 2-1 buydown, you pay 2 percentage points less the first year, 1 percentage point less the second year, and the full rate after that.
On conventional loans, Fannie Mae limits temporary buydowns in three ways:
- The size of the reduction: The rate reduction cannot exceed 3%.
- The yearly step-up: The rate cannot increase by more than 1% per year.
- How you qualify: The lender must qualify you at the note rate, not the bought-down rate.
That third rule is the one to remember. A temporary buydown lowers your early payments, but it does not help you qualify for a larger loan. Ask for the note rate, and the payment at that rate, in writing.
Is There a Limit on How Much a Builder Can Contribute?
Yes, on conventional loans. Fannie Mae limits what an interested party, including the builder, can contribute toward a buyer’s financing costs. The cap is 3%, 6%, or 9% of the lower of the sales price or appraised value, depending on your loan-to-value ratio (your loan amount compared with the home’s value).
For a principal residence or second home, the limits are:
| Loan-to-value ratio | Maximum builder contribution |
|---|---|
| Greater than 90% | 3% |
| 75.01% to 90% | 6% |
| 75% or less | 9% |
Three more parts of the same rule matter:
- Where the money can go: Contributions can cover closing costs and prepaids, but not your down payment.
- Buydowns count: A rate buydown the builder funds for your loan, temporary or permanent, counts toward the same cap.
- Overages come off the price: Amounts above the cap are treated as sales concessions and deducted from the sales price for underwriting.
So a large advertised incentive may not be usable in full on your loan. These are conventional-loan rules, and this guide does not cover FHA, VA, or USDA limits. Ask your lender what applies to you.
Builder Incentives When You’re Building, Not Buying a Finished Home
When you build instead of buying a finished spec home, there is one more cost to compare: the interest on your construction loan while the home goes up. A builder who pays that interest lowers what you pay out of pocket during the build.
A construction loan is usually a short-term loan, with the money typically advanced in stages as construction progresses. Interest is owed on that money during the build, before you move in. Our guide to interest-only payments during home construction shows what those payments look like.
Value Built Homes offers this incentive as a permanent program. Through Free Construction Financing, Value Built Homes pays the interest on your construction loan while your home is being built, which saves you thousands in upfront costs. Here is how it fits the comparison:
- What it lowers: It lowers your out-of-pocket cost during the build, before your final mortgage begins.
- How long it lasts: Value Built Homes covers the construction loan interest payments until your home is ready.
Builder Incentive or Lower Price: Four Questions to Ask
Neither one is automatically better. A lower price reduces what you borrow for the life of the loan, while an incentive lowers one specific number, sometimes only for a while. Put any offer through these four questions before you decide:
- What does it lower: the price, the rate, or the cash you bring? Each row of the table above lowers a different number.
- For how long? A price cut and a permanent buydown last the life of the loan. A temporary buydown ends. A credit is spent at closing.
- What does it depend on? Ask whether the offer requires a particular lender or a closing date. Then ask each lender for the same amount of points or credits, so you’re comparing like for like.
- What would the home cost with no incentive at all? This is where a lower starting price competes.
That fourth question is the one a lower-priced builder answers best. Value Built Homes builds from standardized, cost-engineered floor plans and buys materials in bulk. That approach is how Value Built Homes saves most buyers between 20% and 30% compared to building new homes elsewhere. A low price only helps if it holds, so find out whether a fixed price can change during construction before you sign.
Value Built Homes homeowner
Frequently Asked Questions About Builder Incentives
Do you have to use the builder’s lender to get an incentive?
It can be a condition of the offer, so ask before you sign. Either way, ask each lender for the same amount of points or credits so the loan offers can be compared side by side.
Does a temporary buydown help you qualify for a bigger loan?
No. Under Fannie Mae rules for conventional loans, the lender must qualify you at the note rate, not the bought-down rate. The buydown lowers your early payments, but your approval is based on the full payment.
How does a 2-1 buydown work on a new construction home?
In a 2-1 buydown, you pay 2 percentage points less the first year and 1 percentage point less the second year, then the full rate after that. When a builder funds it on a conventional loan, the cost counts toward Fannie Mae’s contribution cap.
Who pays the interest on a construction loan while the home is being built?
It depends on your builder. A construction loan is usually a short-term loan, and interest is owed on it during the build. With Free Construction Financing, Value Built Homes pays that interest while your home is being built.
Start With the Price, Then Weigh the Builder Incentives
Builder incentives are worth understanding, but the price is the place to start, so browse Value Built Homes’ floor plans to see where the numbers begin. Have questions about your forever home or how Free Construction Financing works for your build? Contact the Value Built Homes team to get started.
