Welp, it has arrived. The sub-1% mortgage rate is here.
It’s part of a new promotion from the nation’s top home builder, D.R. Horton.
The company’s financing arm, DHI Mortgage, is currently offering a 0.99% mortgage rate if you buy a home in select communities in Texas.
But the loan has to close on or before December 31st, so you’ve got to act quick.
Also, there are some string attached, which I’ll explain.
Will 0.99% Mortgage Rates Sell More Homes?
There was an article in Bloomberg about home builders betting on 1% mortgage rates to “wake up” home buyers.
Between lofty home prices and mortgage rates that feel really high (their historical average is actually 7.75%), housing affordability has rarely been worse.
Much of that can be blamed on the lack of available for-sale inventory, and the fact that would-be sellers often have very low fixed-rate mortgages.
That has created mortgage rate lock-in, where possible sellers are reluctant to sell and give up their rate.
In the process, it exacerbates the inventory issue even more, keeping prices from falling as they might otherwise do if affordability is too low.
While the high prices are beginning to take their toll, leading to price cuts and some more wiggle room from sellers, it’s still a highly unaffordable housing market.
But the home builders aren’t would-be sellers. They are must-sell sellers because they can’t afford to wait. Nor can they sit on their unsold inventory.
A strategy they’ve employed since 2022 when mortgage rates more than doubled (and eventually nearly tripled) has been mortgage rate buydowns.
Simply put, the builder offers a below-market mortgage rate to bring in a buyer, without having to lower the sales price of the property.
Because it generally takes a 11% drop in home price to equal a 1% drop in mortgage rate, builders can lean on these buydowns to greatly improve affordability.
They also don’t want to lower prices as that can have a cascading effect on a development and hurt appraisals and recent buyers.
The Lowest Mortgage Rate Buydown I’ve Ever Seen
That brings us to the new mortgage rate buydown from DHI Mortgage, which is the financing division of D.R. Horton.
The company is offering an unheard of 0.99% mortgage rate to home buyers for a limited time in select communities.
The ad I came across applied to some properties in Texas, but it might also extend to properties in other states, such as Florida.
Basically the areas where inventory is piling up and needs to be moved quickly, you’re most likely to see these unprecedented mortgage rate deals.
However, it should be noted that the 0.99% mortgage rate isn’t fixed. You don’t get that low rate for the full loan term.
That’d be amazing if it were the case, but it’s not.
Instead, it’s a temporary buydown, meaning it lasts for just the first year of then loan.
In year two, the rate increases to 1.99%, and in year three, it’s 2.99%. Still very low, but not quite the 0.99% that got your attention.
Finally, the rate increases to 3.99% in year four and remains there for the remainder of the loan term.
This is known as a 3-2-1 buydown because you get a reduced rate for the first three years that is 3% lower in year one, 2% lower in year two, and 1% lower in year three.
So for 27 out of the 30 years, the rate is a much higher 3.99%. And that’s ultimately what matters most.
But, that 3.99% is still a well below-market rate because the average 30-year fixed is priced at about 6.25% right now.
Temporary + Permanent Rate Buydown Solves Two Problems
Bringing it all together, this is a temporary buydown combined with a permanent buydown, a tactic home builders have implemented lately to really juice home sales.
It’s not enough to simply provide a rate buydown for the first few years of the loan. Housing affordability is just that bad.
In addition, complementing the temp buydown with a permanent buydown allows borrowers to qualify at that lower rate.
For example, the 3.99% rate is used to calculate the borrower’s debt-to-income ratio (DTI), making it far easier to get a mortgage.
If they had to qualify at say 6.25%, their DTI might be too high, and D.R. Horton would lose a sale.
So the strategy is two-fold; attract buyers with low rates and also increase approval odds.
The only problem is at 0.99%, you can’t go any lower on the mortgage rate front.
