Inventory is UP, but so are the Interest Rates.
While many of us have been waiting, and waiting, and waiting for prices to start dropping, we seem to have “waited” ourselves right into higher interest rates. Higher Interest rates translate to higher monthly payments, and higher monthly payments translate to a smaller overall home budget. Darn it! It’s starting to feel like we can’t catch a break!
But wait! Maybe there is hope after all.
As Home prices are dropping and Interest rates are rising, Lenders are working really hard to get creative and provide avenues for Buyers to achieve their Home Ownership goals. Now it seems that Sellers are beginning to realize that they too can do their part to make Home Ownership more affordable and are now starting to offer “Buy Downs”.
A Rate “Buy Down” is a way for a borrower to obtain a lower interest rate by paying discount points at closing. Discount points, also referred to as mortgage points or prepaid interest points, are a one-time fee paid up front.
He seeks to satisfy a stronger hunger, Young Grasshopper.
If the Seller offers to pay that one-time fee, instead of lowering the price of the home, two things happen. 1. The buyer’s interest rate becomes more manageable, effectively increasing their total Spend budget by reducing their monthly payments. And 2. The Seller may then get to use that “Buy Down” cost as a tax deduction.
As it turns out, it’s a Win-Win. The chart below shows you how a rate buy down can save the Buyer AND the Seller in a BIG way.
Based on a $664,900.00 List price, assuming that the Buyer is putting 20% down, on a 30 year Mortgage.
|
Caine’s House |
List Price |
Price Reduction |
Rate Reduction (Buy Down) |
|
Sales Price |
$664,900.00 |
$644,900.00 |
$664,900.00 |
|
Down Pmt % |
20% |
20% |
20% |
|
Loan Amount |
$531,920.00 |
$515,920.00 |
$531,920.00 |
|
APR% |
5.650% |
5.651% |
4.398% |
|
Total Monthly Pmt |
$3,532.03 |
$3,439.93 |
$3,125.80 |
|
Price Reduction |
$0.00 |
$20,000.00 |
$0.00 |
|
Cost to Seller |
$0.00 |
$20,000.00 |
$15,957.60 |
|
Seller Net Proceeds |
$664,900.00 |
$644,900.00 |
$648,942.40 |
Notice that if the Buyer “Po” were to negotiate a price reduction of $20k on Seller “Caine’s” House, Po’s monthly payment would drop by $92.10 per month, and the cost to Caine would be $20,000.00. BUT if Po were to negotiate a Rate Buy Down as shown above, Po’s monthly payment would drop by a whopping $406.23 per month and effectively only cost Caine $15,957.60, which may be tax deductible! But wait, there’s more, Caine also ends up with $4042.40 more in “Seller Net Proceeds”.
I’d say that it seems like a no-brainer, wouldn’t you?
We all know that the Real Estate Market is a little crazy. That’s why it’s important to understand our options, ALL of our options.
Call your favorite Lender and ask them about Buy Downs and how it can affect your Mortgage. You may be surprised; your Dream Home may still be within reach!
If you don’t have a favorite Lender and would like more information on Great Lenders in our area, OR if you’d like more information on finding your Dream Home, I’m always here to help!
