The recent increase in mortgage interest rates has slowed the housing market somewhat. Instead of the multiple offers on the first weekend, we'd seen the past couple of years, home sellers are seeing their homes sit and not sell. Often, the easy and obvious strategy to help sell the house is to take a price reduction. In some cases, perhaps that's the right call. But there might be a better option for both the seller and the buyer. A 2-1 buydown loan can be a great tool to help a seller sell and a buyer buy. Below is how the $ look and a brief explanation to help you understand.
Above is a recent scenario I helped a client with. The rate info may be different when you read this but the savings will be about the same. The house my clients bought had been on the market for a while. Instead of offering $15,000 less than the asking price, they asked the seller to contribute $15,000 of their closing costs and, used the $ to do a 2-1 Buydown Loan.
With the prevailing interest rate at 7%, the 2-1 Buydown loan lowered their interest rate to 5% in year one and 6% in year two before going to 7% in year three. Their payment was $800 lower than what it would have been if they paid the original asking price in year one and $700 less than if they had gotten a $15,000 price reduction. Above, you can see the yearly payment comparison.
The cost to the seller for doing this was $14,898. Those $ were held by the loan servicer and applied to my client's monthly loan payment to make up the difference in the payment. The thought is interest rates will come down in the next year, and they will refinance to a lower rate. If that comes to fruition, any $ left from their buydown will be applied to their loan balance when refinancing.
The 2-1 Buydown Loan was a great tool to help my clients get into a home, afford the payment, and not stretch so much the first couple of years. Their income should go up in the next two years, and they'll be much more comfortable with the increased payment. If rates go down as expected and they can refinance, it will only become more affordable for them. It was also a significant benefit to the seller as they sold the house to someone who would not have made an offer otherwise. With higher interest rates and prices softening some, it could also be an excellent tool for you. Reach out to me today before rates go down, and prices go up to find out if a 2-1 Buydown Loan is right for you!
For more information on a 2-1 Buydown Loan or to talk about other options to help you finance or refinance a home, call or email me today! C: 971.275.2465 E:tdavidson@umortgage.com
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