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Published Date 5/29/2024

The lowdown on the buydown Builders do it as an incentive to sell new construction, so why not the sellers of resale homes? In a market where interest rates make your head spin when juxtaposed against the high price of a house, anything that can be done to reduce the mortgage interest rate is a huge perk to a buyer. Of course, anything a seller can do to attain the highest price possible for their home is also worth exploring. How does this work? Because interest rates can be a huge barrier for many buyers, a rate buydown can make things happen. There are two types of buydowns, permanent and temporary, but either will reduce the interest rate of the loan, allowing the borrower to save money on their monthly mortgage payment. What can sellers do? They can help a buyer obtain a permanent mortgage rate buydown by paying a fee (mortgage points), to lower their interest rate for the life of the loan. A permanent rate buydown is a good strategy for buyers who plan to stay in their new homes long term. “You can purchase as little as 0.125 of a mortgage discount point or as much as 4 mortgage points; the limit varies by the type of loan,” says a rep from American Pacific Mortgage. “Home sellers should keep in mind that each point is equal to 1% of the buyer’s home loan amount. For example, with a $500,000 mortgage loan, 1 point will be $5,000.” If you’re not a cash buyer and don’t think a buydown is more advantageous than a price reduction, let this sink in: If you ask the seller to reduce the price of a $300k home by $10k, you’ll save about $78 a month. But if you ask for a $10k credit in escrow to buy down your interest rate, you’ll save $248 per month. Reach out for more! APM, TBWS

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