The Win-Win Solution - A Rate Buydown

During the past couple of years, the housing market has been red hot and buyers often had to pay well above the asking price to have their offer accepted. Additionally, the transaction was all on the seller's terms. And while the housing market is still strong today, it has cooled off, giving buyers the opportunity to negotiate better price and terms.

We can mostly thank the rise in mortgage interest rates in the housing market cooling. With that, comes a new set of sturggles for buyers (and sellers!) to navigate. With the increase in rates, less homebuyers qualify to buy a home. Or more specifically, homebuyers are qualifying for less of a home.

There is a temptation to lower home prices to increase the pool of eligible homebuyers who may be interested in the property. Luckily, there is an alternative path that creates a win-win situation for both homebuyers AND sellers: The rate buydown program.

A rate buydown offers lower interest rates for the first couple of years of the loan. Instead of negotiating a lower price from the seller, a homebuyer can request the seller to pay the cost of the buydown. For sellers, in most cases, the cost to buy down a rate is less expensive than the money they would loose in lowering the price of a home. Additionally, buying down the rate means more buyers available to bid on the home.

For buyers, this gives the opportunity to get the home of your dreams at a payment that is much more affordable, with the opportunity to refinance in the future to a very attractive rate.

Currently, there are two forms of a rate buydown - 3/2/1 and the 2/1. 3/2/1 is a buydown for three years, and 2/1 is for two years. Additionally, the 3/2/1 lowers the rate 3 percentage points for the first year, while the 2/1 lowers the rate 2 percentage points for the first year.

Here is an example:

If you’re thinking about purchasing a home or in the process of doing so, reach out to me today to learn more about the 2/1 buydown.