Topics: business, real estate
If you live on this side of Maryland, those words preceded by “you can own a home” may sound almost magical. That’s because the average home price in this area, as I’ve mentioned before, is roughly 600 trillion dollars. Now normally you would either need to make montly payments of about $30 billion or get one of those new 42,000-year mortgages everyone’s raving about in order to afford such a home. But K. Hovnanian won’t have any of that!
It’s been a rough year so far for Hovnanian, the nation’s #8 builder of homes. So it’s no wonder that flyers like the one on the right (click image to enlarge) have been flooding my mailbox lately. Hovnanian is offering me my choice of either a three-level townhouse in Frederick (about 25 miles north of here) or a “luxury villa home” in Hagerstown (out in the middle of nowhere) for under $300,000. In Maryland, that’s a decent price for new construction in those areas.
The kicker to this whole deal is the financing that Hovnanian is so graciously offering to help people purchase these homes. Any one of those homes pictured could be mine “for as little as $1,552 per month.” Case closed, sign me up, I heart Hovnanian. Right? Right.
I mean, wrong. If you take a look at the fine print of Hovnanian’s financing offer, you’ll see that the key words to their hook phrase are “as little as.” What these flyers won’t tell you is the value of “as much as,” but we can figure that out together by carefully reading the fine print, reproduced at the left (click to enlarge).
Why lookie here, it’s our old friend the 5/1 adjustable rate mortgage! And he’s brought his cousin the 2-1 buydown! Aren’t we the lucky ones!
As you may have suspected, the $1,552 figure refers to your monthly payment for only the first year of the mortgage. That’s because the 2-1 buydown reduces your APR to just 4.25% for year one. In year two, that rate jumps to 5.25%, and in the three years after that, it rises to 6.25%. After that, the adjustable rate kicks in and who knows what you’ll be paying each month then! Let’s assume your adjustable rate stays relatively low at 7.5%. That means in year six, your monthly mortgage payment will skyrocket to over $2,100.
There’s a good reason the Hovnanian flyer omits an “as much as” phrase–it will cost you a whole lot of money in just a few short years if you go with their financing. If you were planning to stay in your home for more than five years, you’d want to explore options like fixed-rate loans instead.
So don’t be fooled by fancy, full-color flyers promising you more house at a lower price than you thought was possible. Chances are the price isn’t possible after all–at least not for very long.