Rising Mortgage Rates Have Tightened Affordability, but Older Buyers May Still Hold an Advantage

Builders are covering closing costs to keep deals moving, and larger down payments can increase the help a buyer can negotiate.

PulteGroup, the developer behind Del Webb active-adult communities, said third-quarter orders dropped 6% from a year earlier.

“The rapid increase in interest rates has stretched affordability even further,” CEO Ryan Marshall said in the company’s earnings release, adding that higher rates have also made it tougher for buyers to sell homes they already own.

Older buyers have fared better at PulteGroup. The company told analysts that sign-ups among active-adult buyers increased 11% from a year earlier, even as overall orders declined. Move-up and active-adult buyers now make up more than 60% of the company’s business.

For buyers 55 and older who have substantial equity in their current homes, a builder eager to maintain sales and a large down payment can create real bargaining power.

Builders are paying to close sales

PulteGroup is not alone. In the National Association of Home Builders’ October survey, builder confidence fell to 29, the weakest reading since June 2012. About 43% of builders lowered prices, the highest share in any month since the start of 2020, with an average cut of 6%. And 65% offered sales incentives.

Interest rates account for much of the pressure. The average 30-year fixed rate was 7.32% at the time of the report, compared with 6.19% a year earlier, and forecasters have delayed expectations for when mortgage rates may ease.

A larger down payment can unlock more builder assistance

When a conventional loan is sold to Fannie Mae, rules limit how much a seller or builder can contribute toward the buyer’s closing costs, and that limit rises as the down payment gets larger.

For a primary residence or second home, Fannie Mae allows contributions of 3% of the price when the loan covers more than 90% of the value, 6% when financing is between 75% and 90%, and 9% when financing is 75% or less.

On a $500,000 home, that means the difference between $15,000 in builder-paid financing help for a buyer putting less than 10% down and as much as $45,000 for a downsizer putting 25% or more down.

The cap is only a ceiling, not a guarantee, and any assistance cannot exceed the buyer’s actual closing costs. Even so, it gives buyers an idea of how much room they have to ask.

Cash buyers do not have financing costs to cover and may be able to press for a lower price or upgrades instead.

Lower price or rate buydown

A temporary buydown reduces the payment only for the first few years. Under Fannie Mae rules, the rate reduction cannot exceed 3 percentage points, can last no longer than three years and may rise by no more than 1 point a year; the lender must also qualify the borrower at the full rate.

A permanent buydown, usually paid for through discount points, reduces the interest rate for the life of the loan.

Buyers who expect to stay in the home and keep the mortgage may gain more from a permanent buydown. Buyers who expect to pay off the loan quickly after selling their current home may benefit more from a lower purchase price, which reduces the loan balance and, in many places, the starting point for property taxes. Ask the builder to price both options in dollars.

Compare the builder’s lender with an outside lender

Builders often tie their best incentives to the use of an affiliated lender. Request a Loan Estimate from that lender and from at least one other lender for the same loan amount, term and rate lock, then compare the rate, points and total closing costs.

Also evaluate the home itself. Between 2015 and 2025, new homes became smaller even as price per square foot rose 71.9%, so an incentive on a smaller floor plan may not beat a resale home that only needs modest repairs.

Review the community rules before signing

To qualify as 55-and-older housing under federal fair housing law, a community must have at least one resident age 55 or older in at least 80% of occupied units, publish policies showing that intent and verify residents’ ages, according to HUD.

Communities can set their own rules within that framework, so ask in writing whether a younger spouse or an adult child could live there, and request the homeowners association’s fee history and reserve information.

Marshall also noted the difficulty buyers face when trying to sell an existing home. Before signing, ask whether the builder will accept a contract contingent on that sale or a smaller deposit while the old home is on the market, and make sure every incentive is written into the purchase agreement with a dollar amount attached.