Builder Incentives Explained: Rate Buydowns, Closing Credits and Design Credits

New-home builders around Houston compete for buyers with incentives: money toward closing costs, rate buydowns and design-center credits. Some are genuinely valuable. Others look bigger than they are. I don't publish a list of "this month's specials," because they change constantly and I can't verify them for you. What I can do is show you how incentives actually work, the limits your loan puts on them, and how to compare a builder's offer fairly.

1. Closing-cost credits. The builder pays part of your closing costs: lender fees, title charges, prepaid items. It's simple, and it lowers your cash to close.

2. Permanent rate buydowns. The builder pays discount points to lower your interest rate for the life of the loan. One point equals 1% of the loan amount, so on a $400,000 loan one point costs $4,000. The benefit lasts as long as you keep the loan.