Let’s Talk Mortgages

As the Fed continues to raise interest rates, Buyers are looking for ways to make their monthly payments more manageable when purchasing a new home.  

Audrey with CrossCountry Mortgage recently provided us with the following information on Mortgage Buydowns and how they can help lower your interest rate.

Buydowns
A buydown is a real estate financing technique that makes it easier for a borrower to qualify for a mortgage with a lower interest rate. That lower rate can last for the duration of the mortgage (as is often the case when borrowers pay extra points up front to the lender) or for a particular period of time.  A permanent buydown would be exactly that, an amount paid by the borrower to permanently lower the interest rate for the entire term of the loan.  

A Seller Paid Buy Down is a seller concession or seller credit toward the buyers closing cost.  If the lender is involved in the conversation early on we can use a seller paid buy down strategy to help reduce the interest rate for the buyer.   In this case a 2/1 buydown is a great example.  

A 2-1 buydown is a mortgage agreement that provides for a two percentage point lower interest rate for the first year of the loan, a one percentage point lower rate in the second year, and then the full rate for the third and later years.  Structuring it this way achieves a lot more viability with regard to a lower payment for the buyer as opposed to just dropping the price on the listing.   In this case the seller gets their asking price, or close to it and the buyer gets a lower rate.
  

• For home sellers, a 2/1 buydown can help them by making it easier and sometimes faster for them to sell their homes for a good price. The downside, of course, is that it comes at a cost, which ultimately reduces how much they will net from the sale.
• For homebuyers, a 2/1 buydown can be a good deal as it gives some time before their mortgage payments rise to the full amount, which can be helpful if their income is also rising from year to year.