A Solution to Homebuyer's Pain
What's the #1 pain point for home buyers today? The monthly payment as interest rates have risen by 1% over the last year. So, here's a solution for you that I can guarantee you that many of you have never thought of as this idea goes back over 20 years.
It's a seller paid interest rate buydown and it can be used on a conventional loan, a FHA loan, or a VA loan. The buydown can be done in one of two ways. First, is a 1 year 1% rate buydown. For example, the long-term rate is 5%; but for the first year the rate is 4%. The cost to the seller is about 0.71% of the loan amount or roughly $2800 on a $400k loan.
The second option is a 2/1 buydown in which the interest rate the first year is 2% lower (3% in my example) and in the second year the rate is 1% lower or at 4%. Then, after the temporary interest rate buydown the payment is the normal long-term rate and won't change again.
Here is an example of a client looking at a home priced at nearly $400k who would be best served by a FHA loan with 3.50% down, which currently has a rate of 4.875%.
The first year your rate would be 2.875% and second year your rate would be 3.875% and your rate from year 3 thru year 30 would be 4.875%. This costs the seller about $8250 or about 2.125% of the loan amount.
Thus, in year 1 your principal and interest payment drops to $1609. For your second year your principal and interest payment is $1823. Then, for year 3 thru 30 your P&I payment is $2000 a month. In this instance my client would save nearly $400 a month the first year which is HUGE!
This solves a MAJOR PROBLEM for our buyers-payment shock. Second, for a home seller instead of dropping the price, instead offer to pay for a temporary interest rate buydown and sell your home for full price!