Lennar sent me a promo email this week. The subject line: 4.99% FHA fixed, 5.25% conventional fixed, 3.99% ARM. Last I checked, the average 30-year rate was 7.40%.
Builders have been doing this for years. I wanted to know what the others are offering around Phoenix right now, what it costs them, and how long they can keep it up.
What Lennar is offering
The email I got on October 16 offers 4.99% on an FHA loan and 5.25% on a conventional loan, plus up to $10,000 toward closing costs. Adjustable-rate options start at 3.99% and 4.25%. The offer depends on the estimated move-in date of the home.
In late September, the same sender was offering 4.50% FHA and 4.75% conventional. In three weeks the promotional rate went up about half a point. The builder's rate is following the market, from a much lower starting point.
What that is worth to you
On a $500,000 loan, 30-year fixed, principal and interest only (my math, not Lennar's):
- 5.25% is about $2,761 a month
- 7.40% is about $3,462 a month
That is $701 a month, or about $8,400 a year.
What other Phoenix builders are advertising
Here is what four of them have posted for the Phoenix area as of October 19. Each one is an "as low as" example, and each has conditions.
Pulte advertises 5.25% on an FHA 30-year fixed and 5.99% conventional. Their fine print says the example includes a borrower-paid discount (1.5% on the FHA rate, 1% on the conventional rate), requires financing through Pulte Mortgage, and applies to select quick move-in homes that close by April 30, 2027.
Meritage advertises 4.99% fixed (5.752% APR) on select Phoenix quick move-in homes, for contracts signed October 1 through November 1. The example is a $400,000 home, 20% down, 780 credit score. You have to use Meritage's lender and title company, and their cap on all incentives combined is 3% of the base price.
KB Home advertises rates as low as 4.99% (5.781% APR), but that one is a 5/1 FHA adjustable-rate mortgage. The rate is fixed for five years and can change after that.
Toll Brothers is advertising 5.49% (5.76% APR) on select quick move-in homes, for a limited time.
Look at the spread. Everyone is between roughly 5% and 6%, and the market is at 7.40%. And look at the conditions. The rate is almost always tied to the builder's own lender, a specific list of homes, and a deadline.
Who pays: the builder, up front
A permanent buydown works like this. The builder pays a fee in advance to lock in a pool of mortgage money at a lower rate, then hands that rate to buyers. Big builders are well set up for this because many of them own their own mortgage company, which is why the lender requirement shows up so often.
The American Enterprise Institute, a think tank that has been critical of the practice, estimates that lowering a rate by one full point costs the builder about 3.2% of the home's price. To get the same monthly payment with a straight price cut, the builder would have to cut the price by roughly 10%.
That is why you see rate offers and not price cuts. The rate buydown gets the buyer to the same payment for less, and the price on the sign stays put. It also keeps the neighbors from asking for the same discount next door.
How long can they keep it up
It depends on margin. Lennar's incentives ran about 12% of the sales price last quarter. Its gross margin was 15.8%, down from 17.5% a year earlier, and it guided to 15.5% to 16% for the next quarter. It also cut its full-year delivery forecast, and management said the incentives and price cuts were needed to keep volume up as rates rose.
D.R. Horton is in a different spot. Its gross margin was 20.7% last quarter, and it guided to 20.5% to 21% for the next one. It says it expects incentives to stay elevated. A builder with a margin that high has more room to keep paying.
Nationally, the September NAHB survey had 66% of builders using incentives and 38% cutting prices, with the average cut at 6%. Builder confidence fell to 32, the lowest reading in a year.
My read: builders can keep buying down rates as long as moving homes matters more to them than margin. Horton can do it for a long time. Lennar has already given up 1.7 points of margin in a year. And every time market rates go up, the buydown costs more to maintain, which is why Lennar's offered rate went up in three weeks.
The part nobody puts in the email
AEI estimates that about 64% of homes sold by the largest builders used a permanent buydown as of mid-2025, compared with about 13% for smaller builders. It argues that buydowns are what have kept large-builder new-home prices about 6% above resale prices. In other words, the discount may be in the rate, not the sticker price. A buyer paying cash, or one who doesn't use the builder's lender, may be paying the full price for a home that was effectively discounted for someone else.
That is one group's argument, and not everyone agrees with it.
If you are comparing a new home to a resale, the sticker price is only half of it. Ask what the payment is with the builder's rate, what it is with a market rate, and what the price would be without the incentive.
I only covered four builders here. If you want to see how the rest of them stack up (D.R. Horton, Taylor Morrison, Toll, Del Webb and others), message me and I'll send you a side-by-side.
At what margin do you think the next round of incentives turns into price cuts?
