Want to buy a home but concerned about interest rates?
We’re here to fill you in on a little secret on how to get your mortgage rate down by 1, 2, or even 3 points immediately. Okay, it’s not actually a secret – it’s called a Temporary Rate Buy-down.
This is a tool that lenders offered in the past for borrowers who were starting their own business, practice, new position – people who needed a lower payment initially, but knew their income would be increasing in the upcoming years. Now, we are using it to aid buyers in transitioning to a higher monthly payment, by immediately dropping their rate.
The first thing you need to know is that this is not a loan program – it is an add-on feature to the program you have already selected. It can be used on any owner-occupying, conventional home loan used for the purchase of a home.
Secondly, the cost for the rate buy-down is unique to each specific loan (loan amount, rate based on your personal qualifications, and loan term). The cost can be paid for through seller concessions or by the lender with a slightly higher rate. The longer the buy down term (3 years), the higher the cost; the shorter the term (1-2 years), the lower the cost.
In the current market, we are seeing home price drops between 3 and 8%, while the buydown feature would typically only cost the seller 2%, or less, of the purchase price.
Keep in mind, a purchase price drop of 10K to 30K only saves the buyer between $50 and 180 dollars per month, while a 3-point rate buy down can save the buyer between $800 and $1200 per month in the first year, $500-800 in the second year, and $250-500 in the third year. In reality, the rate buydown feature is a win-win for both the seller and the buyer!
So, instead of putting in an offer $20,000 lower than the list price, it may benefit the buyer more to offer full list price with a request for seller credits to pay for the temporary rate buy down fee.
Download our free rate buy-down calculator so you can see for yourself how much you could save in the first 3 years of your loan.
For more detailed information, and property/loan specific numbers, give us a call today!
***Savings and qualifications are specific to each borrower and are subject to change. Savings are based on interest rates as of 11/27/2022.***