Home Buyers Jovanah Mckinney November 17, 2022
The increase in rates has buyers looking for creative ways to lower their monthly payments, and the biggest bang for their buck is with a seller-paid buy down.
What it is: The seller agrees to pay for the buy down, which lowers the buyer's interest rate for a set period of time.
Example: 800k purchase price with 20% down. The seller would pay $14,480 for a 2-1 buydown. In this scenario, the note rate would be 6.375%, but for the first year, the lender would allow the buyer to pay at 2% below the note rate. For the second year, the buyer would pay 1% below the note rate. Year three and on would be at the 6.375% note rate.
Year One: 4.375% rate. Principal & Interest payment is $3,195/mo. This saves the buyer $797 per month!
Year Two: 5.375% rate. Principal & Interest payment is $3,583/mo. This saves the buyer $409 per month!
Year Three+: 6.375% rate. Principal & Interest payment is $3992/mo.
To compare: That same $14,480 credit from the seller would get the buyer approx. .625% better than the rate, saving them $258/mo.
The takeaway: The buy-down is a good strategy at the seller's expense when a refinance opportunity is anticipated in the near future.
Fine print: Buy downs are only available on conventional loan sizes (647,200 or under in Nevada County and $675,050 and under in Placer County).
For buyers looking to get pre-approved over the weekend, please feel free to complete a loan application by clicking here.
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