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Occasionally, new home builders offer financing assistance as an incentive (and convenience) for buyers to purchase one of their new homes or condominiums. Builders may have an arrangement with a lender to buy down the prevailing interest rate or offer to lock in the interest rate until the home is built and you close (which could be several months to a few years in the future). For instance, assuming the current market interest rate is 5 percent, and the builder offers you a 3.5 or 2.9 percent rate, the builder would be paying the difference between the current rate and whatever rate is offered for the period of the term — this is what is meant by “buying down” the rate.

While this may be an attractive and more affordable way to enter into home ownership, read the fine print and get legal advice. Some builders may add this extra amount they paid to buy down the rate to the sale price of the home. Often the term of the mortgage the builder offers is short (e.g., one or two years), after which the mortgage loan becomes due and payable and you will need to arrange your own mortgage elsewhere at current rates. If interest rates have increased, this could create an affordability or qualifying problem for you. Determine if you will qualify for the mortgage at an anticipated higher rate. Consider worst-case scenarios with interest rates and how they may affect you in the future. Understand in advance what your responsibilities will be, and ensure that you get appropriate legal advice before you agree to this type of mortgage.