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Hi, I'm Ella Gurfinkel, your host of the AskElla Show and senior loan officer at Fairway Independent Mortgage. On my podcast, I cut through the noise to bring you honest conversations about real estate, mortgages, and financial planning.
I interview industry experts to tackle everything from homebuying basics to complex topics like reverse mortgages, trusts, and market trends. With decades of experience, I'm passionate about dispelling myths and providing clear, actionable advice.
Whether you're buying your first home, refinancing, or planning for retirement, I'm here to help you make informed decisions. Join me for straightforward talk about real estate and beyond!
If you bought a Dear Horton home in the last two years and you owe more on your mortgage than the home is worth, you're not alone. According to an independent analysis of Genie May data, 18% of Deer Horton FHA borrowers are already underwater and for that number is 27%. These aren't edge cases. This is a pattern. I'm breaking down exactly how it happens.
I'm Ella Gerfingle, senior loan officer with over 30 years in the industry and over 2,000 families served. And what I'm seeing right now in new construction, backed by actual data, is something that every firsttime home buyer needs to understand before they sign anything. Hear me out. I want to be very precise with you today because the story isn't simply they're scamming you. It's way more systemic than that. and honestly a lot more dangerous. First, let's talk about the buy down math. You're not being shown. Dear Horton's in-house lender, DHI Mortgage, currently offers 3.99% on a 30-year loan in certain communities. The national average from a primary lender is about 6.22% based on Freddy Mack data. That is a real gap and it gets buyers in the door, right? But here is what actually happens behind that number. Large builders buy forward commitments from lenders. Agreements to purchase mortgages in bulk at below market rates. They pass that subsidy to buyers as a lower monthly payment. Sounds like an awesome freaking deal. The catch is what it does to the home price. Why your home is worth less than you paid. According to the analysis by the AI housing center, between 2019 and 2024, the new homes from the largest builders, the ones using buyowns the most aggressively appreciated 6% more than both existing homes and new homes from smaller builders. On paper, that sounds good. In reality, it means you overpaid for the home itself in exchange for a lower rate. Here is a concrete example from the data. Say a builder has a home listed at 400,000 that isn't moving. They could cut the price by 10% and take a $40,000 hit. Or they could spend roughly half that around 20,000 to buy down the mortgage rate and get you to qualify for the full 400k. They keep their price, you get a lower payment, and you start out slightly underwater before you even move in. That's not illegal. But Lenar last quarter was offering incentives equivalent to 14% of the average home price. That's about 64,000 per property. The highest level of concession activity since 2010. Let me repeat that one more time. 64,000 per property, the highest level of concessions since 2010. That's at the tail end of the housing collapse. What does that tell you? That tells you how much pressure they're under to move inventory and how aggressively they're using rates to do it. So, the underwater problem is real and measurable. John Kamiski, founder of Reverse Engineering Finance, analyzed FHA lenders with the highest rates of underwater mortgages originated between 2022 and 2024. The top of the list is dominated by builder lending arms. Surprise. of roughly 28,300 FHA loans originated by LAR mortgage in that period, 27% are now underwater. For Dr. Horton's lending arm, it's 18% of roughly $55,000 FHA mortgages. Same applies. Compare that to Quick and Loans, which does a similar volume of FHA business, but isn't owned by a builder, and their underwater rate is 10%. That gap, it freaking matters. On top of the price inflation issue, some builders, including Dear Horton in certain communities are running temporary buyowns that start at 0.99 in year 1 and rise to 399 by year 4. Sounds manageable, right? But most buyers don't walk through what their payment looks like at year five when the buy down ends and the full rate kicks in. That's when the payment jump hits. The next danger point is the debt to income picture. The Federal Housing Administration, by the way, that's what FHA stands for, not the first-time home buyer, tracks what share of its borrowers are spending more than 43% of their pre-tax income on mortgage payments. That is a threshold the FHA considers risky. Last year, nearly 23 of the FHA borrowers crossed that line. That's not a number from 2008. That's now. If you're shopping new construction, here are the red flags to watch out for and hopefully avoid. Number one, you are being pushed to use the builder's in-house lender. Get an independent quote first, always. Let me give you an example. In the last 60 days, I looked at a quote from a builder's preferred lender versus the quote I issued to a client. The builder's credit was unbelievable on paper, but my quote ended up being cheaper because one hand giveth, one hint taketh with the builder's lenders. They were charging an arm and a leg for the same rate I was offering without a charge. And that's where all of the seller credit, builder's credit went towards. So, at the end of the day, the buyer was spending the same amount of money out of pocket as if they went with me. And that's one of the biggest warning signs to be aware of. Number two, the rate comes with a buy down. Ask exactly when it expires, what your payment is at year five, whatever the date of the buy down expiration is, and get it in writing. Number three, compare the price to nearby resale homes, not just the other new construction from the same builder. the builder, their job is to maintain the same price. So, the rest of their homes in that community sell. If the new homes in the area are priced 10 to 15% above comparable resale, you're paying for the rate, not the house. You're paying for the concession, not the house. You're paying for bells and whistles and gimmicks and not the house. Number four, if you're using FHA financing with less than 10% down, that is the exact profile with the highest underwater risk based on the data we just walked through. Now, let's talk about what you can do. If you're already in one of these mortgages and you're concerned about your equity position, get an independent appraisal. Not from the builder's preferred appraiser, an independent person. If you're shopping, use an independent mortgage lender, not the builder's in-house or captive or preferred lender. Use the builder's lender for comparison only. And ask the builder point blank. What were the actual comparable sales that justify this price? I want to be clear, a lower rate from a builder isn't automatically a trap. Sometimes it's a genuinely good idea, but the data shows a pattern. Below market rates nearly double the industry benchmark. Prices inflated to cover the buy down subsidy and borrowers stretched beyond what's historically considered safe. That is well worth knowing before you sign. Share this with anyone who's currently shopping for new construction. And if you want to walk through how to evaluate a specific builder offer, drop it in the comments. The consult is absolutely free. You will get blunt comparison, absolutely blunt advice, and I'm more than willing to give you my thoughts on it. Now, please hit that like button, subscribe, leave me your comments, and I'll see you in the next one.