Beware of new homes selling at bargain prices

What sounds like a great deal is more like trouble
Published on Nov 27, 2006

"I have been offered a tremendous deal -- a house that appraises at $364,000 that I can buy for $294,000, with 100 percent financing, and the builder will pay all my closing costs ... I can afford the payment for only six months, and it will take all my savings, but the broker says that I will be able to do a cash-out refinance in six months based on the appraisal and net about $60,000, which will cover the payment for another two years. ..." You need a reality check. If the builder could sell the unit for $364,000, he would not be offering it to you for $294,000. Appraisals done for builders usually produce the numbers the builders want. That this particular builder, in addition to offering the "bargain" price, is also willing to pay your settlement costs, is a reflection not of his generosity but of his desperation to sell the house. Further, the probability that you will be able to do a cash-out refinance in six months is vanishingly small. Lenders won't do a cash-out refinance in e...