What if you could make a full offer on a house, and have the seller pay money to lower your mortgage interest rate? Sound too good to be true? Well, it’s not and it is definitely a strategy worth looking into for buyers, sellers, and agents!
We all know that there is a lot of uncertainty and volatility in the market today. Inflation and rising interest rates are putting pressure on everyone. But, before you give up the idea of buying or even selling your home right now, let’s look at a strategy that can truly be a win-win for everyone.
WHAT IS A BUYDOWN?
A buydown is a way for a buyer to obtain a lower interest rate by paying discount points at closing.
Discount points may also be referred to as mortgage points or prepaid interest points, and are a one-time fee paid upfront.
Since mortgage rates are forecasted to continue rising in 2022, the buydown method can be a useful tactic to allow you to buy a home and lock in the value and protect yourself against rate hikes.
WHO CAN BUY DOWN A MORTGAGE?
Although typically, it’s the buyer who benefits from a buydown, the buyer isn’t always the one who buys down a mortgage. Sellers can also be responsible for purchasing points to lower the buyer’s interest rate. Let’s look at how a buy down strategy works.
As the housing market shifts, so can home prices. While we do not expect housing prices to rapidly decline, there may be a “slowing” in the market. Sellers do not want to “lower” the listing price of their home, so using a buy down strategy can help them to maintain the listing price of the home, while allowing buyers to be able to qualify for the home. It also allows agents to maintain their income. In today’s market, it truly is a win, win, win.
So, let’s talk about how a buy down can work using seller concessions. A seller concession is used for the explicit purpose of buying down the buyer’s interest rate. There are many benefits to using seller concessions, or seller-paid discount points. Let’s look at the benefits in using this strategy.
PRICE REDUCED ALTERNATIVE
We will begin by talking about the price-reduced alternative that is often the first negotiation strategy that buyers consider. Instead of submitting an offer at the “reduced price”, you present your offer at the full price and your original asking price offer will stand out from other offers.
WIN / WIN WITH SELLER
You are offering the seller of the home a higher NET from the sale of their home if they help you, the buyer reduce your interest rate & payment.
They get a full-price offer on their house, in turn, they only pay your discount points, so you get a lower interest rate.
Now, let’s look at how to write an offer using the buydown strategy.
HOW TO WRITE IT INTO THE OFFER
Seller concessions designated as bonafide Discount Points should be disclosed on the purchase contract. This statement should simply state that all monies are to be applied directly toward buying down the interest rate of the buyer.
PRESENTING YOUR OFFER TO SELLER’S AGENT
It’s best to have your lender record a video to accompany the offer package that breaks down the Return on Investment (ROI) to the seller, and how accepting your offer is a win/win for both parties.
Best case, you can get your lender on a call with the seller’s agent to make sure they understand the offer.
The bottom line is this: Agents, sellers, and buyers should at least be aware of the buy-down option. If the numbers work and the seller is open to a little creativity, make it happen.
