How to Beat Rising Mortgage Rates
With interest rates on the rise, here is a strategy to get you a lower interest rate and a lower house payment. It is called a Seller Buy Down.
The basic idea for the Seller Buy Down is to get money back from the seller to permanently buy down your interest rate. Most agents and lenders will tell you to try to negotiate cash back from the seller for closing costs like escrow fees, and loan fees but not many of them will suggest to permanently buy down the interest rate on the loan which will significantly reduce your monthly mortgage payment. Your agent should try to get as much money back as possible to help you, the buyer, get the home of your dreams.
Let's Look at the Numbers
Let’s look at an example of the numbers for a seller buy down.
Let's say the buyer will be putting in an offer to purchase a $300,000 house. The house may have been on the market for a while, but the seller is still not willing to budge on their asking price.
Let's also say that the buyer has $60,000 in his bank account to use as a downpayment on the house, and the seller is not willing to look at a low ball offer, here is an out of the box alternative using a Seller Buy Down.
So let's say the interest rate that the buyer will get with is 4.0%.
If the selling agent is able to negotiate $10,000 toward the Seller Buy Down, then the interest rate will be lowered to 3.25% on the 30 year fixed rate mortgage.
All things considered, you might be better off with a Seller Buy Down than a Low Ball Offer.
The net price to the seller will be $290,000, this helped the buyer qualify for a higher loan to get into the home by reducing the interest rate. The seller spent $10,000 on the buy down to save $15,000 — and saved the deal.
The buyer was able to use the seller contribution to buy down the interest rate to 3.25%. The monthly payment goes from $1,145 per month (for a full price offer with no buy down), to $1.044 per month saving just over $100 per month because of the rate buy down, even though they came in at full asking price.
Let's Look at Another Example.
Let's say the buyer will be putting in an offer to purchase a $925,000 house. The house may have been on the market for a while, but the seller is still not willing to budge on their asking price.
Let's also say that the buyer has $20% or $185,000 in his bank account to use as a downpayment on the house, and the seller is not willing to look at a low ball offer, here is an out of the box alternative using a Seller Buy Down.
So let's say the interest rate that the buyer will get with is 5.13%.
If the selling agent is able to negotiate around 3% or $27,000 toward the Seller Buy Down, then the interest rate will be lowered to 4.25% on the 30 year fixed rate mortgage.
In this example the net price to the seller will be $898,000, this helped the buyer qualify for a higher loan to get into the home by reducing the interest rate. The seller spent $27,000 on the buy down to save $23,000 — and saved the deal.
The buyer was able to use the seller contribution to buy down the interest rate to 4.25%. The monthly payment goes from $4,851 per month (for a full price offer with no buy down) to $4,463 per month saving $388 per month because of the rate buy down, even though they came in at full asking price.
If you'd like to see if this will work for you, give me a call.
Comments(4)