Solve Your Buyers’ Monthly Payment Dilemma

Lender partnerships can help builders to ease financial burdens for their buyers.

Affordability anxiety can stop prospective homebuyers from so much as looking at homes. Even when they’re renting, living with their parents or in a dysfunctional older home with leaky windows and soaring energy costs, potential buyers sometimes eliminate themselves from the buyer pool out of fear of high costs.

Builders who can overcome affordability barriers with mortgage buydowns, programs that wrap energy efficient upgrades into the mortgage, and other incentives are better positioned to gain market share and loyal customers.

“One important shift that builders can help people make is to get across the key point that what it will cost to live somewhere is more important than mortgage rates or home prices,” says Don Worthington, division president of PRMI Home Financing. “Many builders do a really great job building a high performance home and saving energy, but they also need to explain and demonstrate what that means for affordability.”

A recent survey by Green Builder Media’s COGNITION Smart Data™ found that the top four obstacles currently preventing buyers from purchasing a home are high prices, difficulty saving for a down payment, high mortgage rates and incomes not high enough to afford a home.

Builders surveyed cited that they hear the same challenges from their buyers: prices are too high (65%), mortgage rates are too high (51%), it’s too hard to save for a down payment (51%) and incomes are not keeping pace with costs (43%).

Education about homeownership costs and how they vary based on the age and quality of a home can help buyers understand affordability in a different way. In addition, builders can educate buyers with the help of lenders about loan programs with reduced down payment requirements and budget for monthly housing costs.

One place to start is the misconception that existing homes are cheaper than new homes. In August 2026, the median sales price of an existing home was $429,100, according to the National Association of Realtors, while the median sales price of a newly built home that month was $393,700, according to the Census Bureau.

While price matters and monthly costs are key, what grabs the most attention is a steep drop in mortgage rates.

Mortgage Rates Below 4% Bring in Buyers

Nearly one in seven listings for newly built homes mentioned a mortgage interest reduction in August, with an average advertised rate of 3.92%, according to Realtor.com.

“Builders are offering temporary buydowns as a way to market a lower interest rate,” says Kelly Zuccarelli, head of business development, Wells Fargo Home Lending. “Wells Fargo also offers a ‘Spec Lock’ product that allows a builder to lock a rate for 90 or 120 days before having a buyer, combined with a permanent buydown. This can make the offer more attractive to buyers and serve as a valuable marketing tool for builders.”

For builders, a mortgage rate buydown is preferable to a price cut to incentivize buyers. A study by the American Enterprise Institute found that lowering the rate by one percentage point costs about 3.2% of the sale price, which on a $380,000 house would be about $12,000. To get a similar monthly payment decrease with a price cut, builders would need to cut the price by at least 10% - or $38,000 in this case. In addition, price cuts may lead to expectations for lower prices for all buyers.

When comparing a buydown and a possible price cut – each costing a builder $20,000 on a $400,000 home, a buydown is usually the better option for purchasers, Worthington says. In that example, a price cut would lower the monthly principal and interest by $114, compared to a $288 drop with a rate buydown. The savings add up over the years too, he says. A price cut would save the buyers $13,700 over 10 years, while a buydown saves $34,500.

“A temporary buydown can be a good way to attract buyers and help them with affordability in the first year or two, but the buyers still need to qualify for the loan at the higher long-term interest rate,” says Teresa Lopez, vice president of the Federal Savings Bank. That protects the buyers from being unable to afford the higher payments that kick in when the mortgage rate buydown ends, she says. However, some rate buydowns are permanent.

Other popular incentives builders can offer to attract buyers and increase affordability, according to Zuccarelli, include closing cost assistance, design center credits, appliance packages and price incentives.

However, a high performance house, built above minimum code requirements, can generate more savings overall than any of these incentives. This is the case because a high performance home delivers lower energy costs, a higher appraised value and possibly even insurance premium savings, Lopez says. Builders can educate buyers about these affordability benefits in lieu of or in addition to any special incentive programs.

In addition, builders may want to ask their lender partners or remind their buyers to ask their lender for a trained green appraiser to maximize the value attributed to high performance homes. “Green appraisals are designed to recognize energy-efficient and sustainable property features,” Zuccarelli says. “While adoption varies by market, these appraisals can help provide additional support for valuation when a property's energy efficient features contribute measurable value compared to similar homes.”

Operating Costs vs. Upfront Costs

While prices and mortgage rates matter, long-term value is far more important than the upfront cost of a home and interest rates. Green Builder Media’s Value Per Square Foot Metric™ focuses on overall quality and performance and calculates total ownership value by factoring in utility bills, ongoing maintenance, insurance premiums and climate-risk exposure.

“Beyond the mortgage payment itself, buyers should account for ongoing homeownership expenses, including property taxes, homeowners insurance, utilities, HOA dues when applicable and maintenance costs,” Zuccarelli says.

In addition to those expenses, lenders and builders can help their customers estimate utility bills, which is particularly important for high performance homes, Lopez says.

“A high performance home built to save energy with a tight envelope including SIPS and high-performance insulation should have a HERS rating done to get a baseline for an appraiser,” Lopez says. “You need to save energy first, before you make energy by adding solar. Then you can ask the HERS rater to estimate the rate with a solar system.”

Lopez does an analysis she calls “PITI+Energy” to analyze borrower monthly payments based on their principal, interest, taxes, insurance and utility bills, to understand their budgets.

“Loan approval decisions are based on debt-to-income ratios that consider recurring debts such as auto loans, student loans, credit card balances and other installment debt, but they don’t include utility bills,” Zuccarelli says. “These ratios can show whether there is sufficient disposable income to cover other reasonable expenses. Credit history, current housing expenses, down payment amount and appraised value are also part of the credit decision process.”

Some lenders do look at utility bills and other metrics to qualify borrowers, particularly for their proprietary “non-qualified” or “non-QM” loans that don’t conform to the standards established by Fannie Mae, Freddie Mac, FHA and VA loan programs.

“Because of high interest rates and affordability issues, we’re seeing an increase in non-QM loans, which are unique programs for people who might not be able to qualify for a traditional loan program,” Worthington says. “These are people who may have nontraditional income because they’re self-employed or own a business, but they can afford to buy a home and want to maximize their housing budget.”

Worthington’s company, PRMI Financing, offers a “Lowtility” loan program, which calculates a borrower’s principal, interest, taxes, insurance and utility costs. The loan program allows borrowers to qualify for a larger mortgage to pay for energy efficiency upgrades or solar power. The extra borrowing power to make these upgrades comes directly from the estimated decrease in their utility bills.

“You can compare this to a car purchase: if you buy a car that costs $500 per month and need $400 per month to buy gas, that’s a total cost of $900,” Worthington explained. “If you buy an EV and don’t need to buy gas, you can afford a $700 payment and save another $200 per month. Loosely applied to housing, that concept means your energy efficiency affects the affordability of your house.”

According to Worthington, eliminating $300 in monthly utility costs can empower homebuyers to borrow $50,000 to $65,000 more with a 30-year fixed-rate loan and pay the exact same amount in monthly housing bills.

Mortgage Loan Options

The most popular loan programs for buyers of newly built homes today are conventional, FHA and VA financing, according to Zuccarelli.

“The mix often varies by market, home price point and buyer needs,” she says. “Key drivers include affordability, down payment requirements, interest rate considerations and eligibility for builder-sponsored incentives.”

The average down payment for most buyers is 15%, according to Realtor.com. Loan programs are available with down payments as low as 3%, but Zuccarelli points out that deposit requirements and down payment percentages vary by builder and market and are influenced by home price, loan program and local market conditions.

In addition to traditional mortgage programs to buy a home, some loan programs are available that take into account energy efficiency improvements.

“Several mortgage programs allow borrowers to finance certain energy-efficient improvements, including solar systems and other sustainability-focused upgrades, as part of the overall home financing package,” Zuccarelli says. “Program availability and eligibility vary by loan type and lender.”

For example, the Fannie Mae HomeStyle Energy loan program and the VA Energy Efficient Mortgage are only available for making improvements to existing homes, not for new construction. The Freddie Mac GreenChoice Mortgage and the FHA Energy Efficient Mortgages program can be used to finance a high performance newly built home, particularly if you want to add a solar system to the home. Worthington says there are pros and cons to each program, including limits on eligible improvements and costs, which your buyers will want to discuss with a lender.

Financing solar power with a mortgage can make the difference between a buyer’s solar system functioning as an asset or an obligation, Worthington says.

“If homeowners want to produce electricity, they can pay cash for the solar equipment or buy through their mortgage, which makes the solar equipment an asset that’s part of the home’s appraised value,” he says. “If buyers finance their solar through a financing company, it becomes an obligation and something they need to get future buyers to take on when they eventually sell.”

Wrapping solar costs into a mortgage has become easier from a numbers perspective in recent years because of higher utility costs and lower solar costs, Worthington says.

“Real estate agents and builders can use these mortgages as an affordability tool,” Worthington says.

As today’s homebuyers struggle with affordability challenges, high performance home builders can develop partnerships with loan experts to educate customers about their financial options.

Publisher’s Note: This content is made possible by our Today’s Homeowner Campaign Sponsor:  ProVia. 

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