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Seller Buydown- A Temporary Mortgage Rate Reduction Option
Could it be right for you?
Here we are in the middle of 2023 and home prices are still high, mortgage rates are still fluctuating and we still need an increase in inventory of homes for sale. This had led to widespread issues with housing affordability. Fortunately, there are many financing options when you’re buying a home, like ARMs, down-payment assistance programs and paying down points. Another option is a Rate Reduce Temporary Buydown program.
TEMPORARY BUYDOWN DEFINITION
A Temporary Buydown reduces your interest rate on your mortgage for the first year or two of your loan. The seller can contribute to your loan to lower the rate during the initial period, and then payments go back up after that initial period is over. The most common is called a 2-1 buydown.
HOW RATE REDUCE WORKS
In order to get a Temporary Buydown through Rate Reduce, the seller of the home has to offer to fund it (this is where the REALTORS can work magic and help negotiate this option). In the case of new construction, the builder can offer to fund the buydown. It needs to be included in the purchase contract as a seller concession. The amount of money that the seller or builder is pre-paying for the buydown, normally called the concession, is paid during closing and kept in an escrow account.
I can work with you to negotiate the details between all the parties. The amount paid by the seller or builder depends on the price of the home and the length of the program and is usually calculated as a percentage of the purchase price.
Here is an example of the breakdown on a Win-Win Scenario:
Temporary Buydown pros and cons
You’re probably asking yourself, why would a seller offer to pay to help you get charged less on your mortgage? Well, it depends on the conditions in the local housing market. If a seller needs to sell, but there aren’t enough buyers able to afford the monthly payments on the house due to current mortgage rates, a Temporary Buydown can help close the deal.
In addition, it’s a great alternative to cutting the asking price of the home. This way, a seller can help make the buyer’s monthly budget work while still getting a full price offer. Funding a buydown contribution could potentially be less costly than what they would have taken off the price of the home.
The benefits to a buyer are pretty apparent:
- Ease into homeownership and the monthly payment knowing they’ll likely be able to afford a bit more each year
- A low-rate bridge to the future, when rates may be lower and it makes sense to refinance
- More money to handle the initial expenses that come with moving into a new home
It’s important to remember that a Temporary Buydown is just that—temporary. After a year, the monthly expenses go up, and again the year after that for homeowners with a buydown option.
There are multiple Temporary Buydown options. Contact me today for more information. I can also connect you to one of the top mortgage lending professionals in Florida, Tony Gemmell, VP of Mortgage Lending, Guaranteed Rate Affinity, for additional information and qualifications on your mortgage options.
Let’s get that property SOLD! I am here to help every step of the way.
Annette Dammeyer, REALTOR®
Coldwell Banker Realty
901 E Las Olas Blvd STE 101, Fort Lauderdale, FL 33301
808.747.3686
SL 3535792
