For home buyers: guidance through the maze of advertising gimmicks
* ''Buy today - 99 moves you in!'' * ''Buy one of our new homes and make interest-only payments on your mortgage loan for the first year!''
* ''Act fast and take advantage of a 7.5 percent mortgage loan!'
This kind of advertising today troubles many home builders, who point to the barrage of advertised claims, or gimmicks, that are surfacing in major cities all over the country.
''It's a confusing market out there,'' home builders assert.
Many of the offers are designed to lure prospective buyers to the advertised new-home development before the prospect has a chance to visit, and perhaps even buy from, a competitor.
In the first offer (''Buy today - 99 moves you in'') the builder or developer pays the minimal down payment and closing costs and then adds that cost to the price of the house. This, of course, means higher monthly payments, but the offer may nonetheless open the market to some first-time buyers unable to come up with a down payment.
Another offer (paying the interest only for the first year) is a ''builder buy-down'' deal. A common offer is a 5-3-1 plan in which the loan is 5 percentage points below the prevailing rate during the first year, 3 points below the second year, and 1 point below the third year. Then it levels off at the prevailing rate at the start of the fourth year.
All the money seemingly lost by the lender during the initial low-interest years is not lost at all. It's paid ''up front'' by the builder or developer. Needless to say, that cost is added to the price of the home.
The third advertised offer is just one of many variations on the buy-down plan, but the cost is ultimately paid by the home buyer.
Such sales-promotion techniques are sparking increasing concern by many housing industry professionals. After a buyer's ''honeymoon years'' are over, the ominous ''payment shock'' sets in. The problem is very real. In many cases, the buyer's loan qualifications are determined by his income and the payments he will be making during the first year, not later when the payments increase.
As a result, the rate of home-loan delinquencies and foreclosures is on a sharp rise. In 1979, there were about 16,000 mortgage-loan foreclosures in the United States. Last year, by contrast, the number was up to 60,000.
''Home builders have a responsibility to structure their financing in a way that will minimize a 'payment shock' problem,'' says Paul Barru, chairman of the board of Home Mortgage Access Corporation, based in Washington, D.C. ''Special regulations may be required to control the problem,'' he adds.
There is already pressure to reduce the negative impact of gimmicky loans on home buyers. For one thing, private mortgage-insurance firms have changed their underwriting policies, placing strict limits on buy-down and other promotional loans.
The professionals in the housing industry want reasonable controls, says the National Association of Home Builders. Any plan that hurts the home-buying consumer will boomerang on the entire industry, it adds.
Any way you figure it, financing costs comprise a big chunk of home-purchase expenses. Today it's about 19 percent of the total cost.
Consumer confusion is a major concern today, builders conclude. The home-loan market has been so volatile in recent years that buyers are generally unaware of the types of loans now available to them. There is a great need for consumer education regarding home financing in the current market.
''We need to do a much better job in educating buyers,'' one builder asserts.