Mortgage and Lending with Prosperity Home Mortgage NMLS#386911
You tell your real estate agent "I want to buy this house, how can I afford it?" It's the house of your dreams - the right number of bedrooms, a great kitchen, and a nice back yard. The problem: it's slightly out of your price range. What are your options?
One option you could choose that can help you afford to buy this particular house is to use the buy-down strategy.
The buy-down strategy is made up of two components. The first component is lowering the interest rate by paying points. One point is equal to 1% of the loan amount. Each lender usually has a matrix of rates and points charged. For example, the matrix might look like this:
8% 0 point
7.5% 1 point
7% 2 points
6.5% 3 points
6% 4 points
(rates presented are for illustration purposes only and are not a solicitation)
Paying more points up-front at the close of escrow means that you get a lower interest rate!
To implement part one of the buy-down strategy, the buyer would choose the lowest rate so that he would be able to afford to buy this house.
Part two of the buy-down strategy is to put language into the contract that requires the seller to pay these points as a credit toward non-recurring closing costs. Non-recurring closing costs are the fees that you pay only once at the closing table, and that do not get charged throughout the life of the loan. An example of a non-recurring closing cost is points!
Here is icing on the cake for the buyer: even though the seller credits for the points paid, the buyer may be allowed to deduct these points as prepaid interest (see Topic 504 from the IRS, and check with your professional tax preparer) in the year that the house was purchased! This could be a huge tax deduction for the buyer!
I have prepared a video example for you to see how this works. As you will see from this video, the buy-down strategy is a win-win for the seller and buyer. The seller opens the door to a larger pool of qualified buyers. The buyer is able to afford to buy the house he wants!
Integrity Real Estate Services 116 SE AVE N, Idabel, OK 74745 - Idabel, OK
BS Ed, Integrity Real Estate Services -IDABEL OK
Anyone shopping for a home needs all of the explanations they can find and read... more knowledge speaks to a better educated buyer whether it's about the type of loan they are looking fo ror not... knowledge is power.
Hi Phil--Good strategy, we started encouraging this a couple of years ago. Buyers loved the idea, sellers seemed a little challenged by it. Some deals actually ended up using it! Do you include the Truckee/Tahoe area? Napa? I'll add you to the database.
Lake and Lodge Realty - thanks for the compliment!
Kathy - thanks for the ggod words!
Judi - You are absolutely right - knowledge is power!
Tamara - Yes I have seen sellers challenged by it, biut with a visual like this video I think it helps. Yes, I am licensed in California so I can help with loans in the areas mentioned.
every community slhuod do this summed it up perfectly -what better way to foster our democracy than having members of every community participating in the conversations that lead to the decisions that affect our lives. Kudos to the city managers who brought their communities into this process.
Phil Caulfield is a Loan Officer with Prosperity Home Mortgage LLC. I have experience with many types of loans, such as conforming, jumbo, FHA, and VA. I have worked with all types of clients, ranging from first- time buyers to high net worth individuals.
As a mortgage banker, we are able to offer many different types of loan programs to meet the needs of a wide variety of clients.
For example, we offer programs with low down payment requirements, which can be attractive to first-time buyers.
We also can help clients who are having a difficult time qualifying with traditional income documentation by utilizing alternative documentation, such as bank statements, to qualify.
Interest-only loans have been attractive to high net worth clients. These type of mortgages give the borrower more flexibility in terms of allocating funds into financial vehicles they deem to be the most attractive.
The current mortgage landscape requires a tremendous amount of documentation and disclosure. My goal as a Loan Officer is to make the process as painless and as simple as possible. Having 30 years of experience has enabled me to anticipate the issues that may come up during the loan process. I work with my clients upfront to work through these issues so that the surprises during the processing of their mortgage are minimized.
I grew up, live, and work in Burlingame. Many of my clients, naturally, are from Burlingame and the surrounding cities such as Hillsborough, San Mateo, Foster City, and Millbrae. I am licensed in the state of California, so I can help people who want to buy or own property anywhere in the state.
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