Builder Incentives Are Rising: How to Compare Them Before You Sign

On October 28, two public builders reported third quarter 2026 results showing new home incentives on the rise. Meritage Homes said its average closing price fell 4%, mainly from higher incentives, rate buy-downs and geographic mix, and Century Communities said on its earnings call that it expects incentives to climb again in the fourth quarter. If you are shopping now, you can begin the conversation with our team and put every offer side by side.

What builders reported this quarter

• Meritage Homes: the average sales price on closings was $365,000, down 4% from $380,000 a year earlier. The company attributed the drop "primarily" to "higher utilization of incentives and related costs including rate buy-downs, as well as geographic mix." Home closing gross margin was 17.4%, down from 19.1%.
• Century Communities: the average sales price of home deliveries was $345,000, down from $384,200 a year earlier, according to its release. Incentives on third quarter deliveries averaged about 1,300 basis points, or 13 percentage points, according to Chief Executive Officer Rob Francescon in the earnings call transcript published by The Motley Fool. He said the company expects fourth quarter incentives to be "200 to 250 basis points higher." A company executive said incentives over recent quarters have split about 60% toward price and 40% toward the mortgage, according to the transcript, and said the fourth quarter may lean more toward the mortgage side.

Some incentives lower the price, while others lower the rate or the cash you bring to closing.

Four common new home incentives

1. Price reduction: the contract price drops. Your loan and, with a percentage down payment, your down payment both get smaller.
2. Closing cost credit: the builder pays part of your closing costs. Your loan stays the same; your cash at closing goes down.
3. Permanent rate buydown: the incentive pays points to the lender for a lower rate for the life of the loan. The CFPB describes points as "an upfront fee that you pay to your lender in exchange for a lower interest rate than you would have paid otherwise."
4. Temporary buydown (2-1): the incentive lowers the payment for the first years only. In the illustration below, the rate is 2 points lower in year one, 1 point lower in year two, then goes back to the full note rate.

Illustration: $20,000 of new home incentives four ways

The math below is an illustration only, built on assumptions, not a quote or an offer. Your decision should rest on your own analysis with your lender's numbers. Assumptions: a $400,000 home, 10% down, a 30-year fixed loan at 7.25%. Freddie Mac's weekly survey put the average 30-year fixed rate at 7.24% on October 29, 2026. Payments show principal and interest only, not taxes, insurance or mortgage insurance.

• No incentive: loan of $360,000; about $2,456 a month.
• $20,000 price reduction: price of $380,000, down payment of $38,000, loan of $342,000; about $2,333 a month for the life of the loan.
• $20,000 closing cost credit: loan of $360,000; about $2,456 a month. Your cash at closing falls by the credit, up to your actual closing costs.
• $20,000 permanent buydown: suppose your lender's quote shows that $20,000 in points brings the rate to 6.50%. Loan of $360,000; about $2,275 a month for the life of the loan. Your lender's actual pricing decides the rate.
• 2-1 temporary buydown: loan of $360,000; about $1,988 a month in year one at 5.25%, about $2,217 in year two at 6.25%, then about $2,456 from year three. The subsidy in this example costs about $8,486, and it counts toward the loan program's cap on builder contributions.

In this illustration, the 2-1 buydown gives the lowest payment for two years, the permanent buydown the lowest payment after that, and the price reduction the smallest loan. Which one fits depends on how long you keep the loan, whether you expect to refinance and how much cash you have.

Loan programs cap what a builder can pay

Fannie Mae treats the builder as an "interested party," and its Selling Guide caps these contributions on a principal residence or second home by LTV/CLTV ratio. The cap is a percentage of the lower of the sales price or appraised value. When an interested party pays for a temporary or permanent buydown, "the cost of that subsidy must be included in the IPC calculation."

• Above 90% LTV/CLTV: 3%.
• 75.01% to 90% LTV/CLTV: 6%.
• 75% or less LTV/CLTV: 9%.

In the illustration, 10% down puts you at 90% LTV/CLTV, so the cap is 6%, or $24,000. With 3% down, the cap would be 3%, or $12,000. Fannie Mae also does not allow these contributions to pay your down payment. Amounts above the limit, or above your closing costs, are treated as sales concessions and "must be deducted from the property's sales price." Other loan programs set their own limits, so ask your lender.

Compare preferred lender offers on the Loan Estimate

Some incentives require a builder's preferred lender. Compare that offer on paper.

1. Apply with the preferred lender and at least one other lender. The CFPB says a lender "must provide you a Loan Estimate within three business days" of your application.
2. Line the forms up. "All lenders are required to use the same standard Loan Estimate form," per the CFPB.
3. Check the rate, the points, any lender credits and the APR on each.
4. Subtract the incentive and compare total cash to close and the monthly payment.

"Compare total cost and the monthly payment, not the headline number on the incentive. Put every offer on the same page," said Bryan De Bruin, CEO of Red Cedar Homes.

"Ask for the incentive in writing, in the contract, with the dollar amount and what it pays for. If it is not written down, do not count it," De Bruin said.

"A stated price matters. When you know the price up front, you can tell what an incentive is actually worth," De Bruin said.

Frequently asked questions

Are new home incentives better than a lower price?

It depends on your loan and plans. A price cut lowers the loan for its whole life. A buydown can lower the payment more, but its value depends on lender pricing and how long you keep the loan.

How much can a builder contribute toward my closing costs and financing?

Under Fannie Mae rules for a principal residence, 3% to 9% of the lower of the price or appraised value, depending on your LTV/CLTV. Other programs set different limits.

Do I have to use the builder's lender to get an incentive?

Some offers require it. Get a Loan Estimate from another lender too and compare the two forms line by line.

Compare homes with a stated price

Red Cedar Homes builds in Charlotte, Greenville and Spartanburg with a stated price, with options priced before contract. Read what is included in a new construction price and our guide to down payment assistance in SC and NC. Browse available homes, new homes in Greenville and new homes in Charlotte. When you are ready, begin the conversation or call 980-890-9381.

Figures as of November 2026. This is general information, not legal or tax advice. Talk to your attorney or CPA about your situation.

Sources

• Meritage Homes, "Meritage Homes Reports Third Quarter 2026 Results," October 28, 2026: https://www.globenewswire.com/news-release/2026/10/28/3390783/6889/en/meritage-homes-reports-third-quarter-2026-results.html
• Century Communities, "Century Communities Reports Third Quarter 2026 Results," October 28, 2026: https://www.prnewswire.com/news-releases/century-communities-reports-third-quarter-2026-results-302922670.html
• The Motley Fool, Century Communities Q3 2026 earnings call transcript, October 28, 2026: https://www.fool.com/earnings/call-transcripts/2026/10/28/century-communities-ccs-q3-2026-earnings-call-transcript/
• Fannie Mae Selling Guide, B3-4.1-02, Interested Party Contributions (IPCs): https://selling-guide.fanniemae.com/sel/b3-4.1-02/interested-party-contributions-ipcs
• Consumer Financial Protection Bureau, "What is a Loan Estimate?": https://consumerfinance.gov/ask-cfpb/what-is-a-loan-estimate-en-1995/
• Consumer Financial Protection Bureau, Loan Estimate Explainer: https://consumerfinance.gov/owning-a-home/loan-estimate/
• Freddie Mac, Primary Mortgage Market Survey, October 29, 2026: https://www.freddiemac.com/pmms