As interest rates continue to rise over the past few months, many buyers have put a pause on shopping for homes. Although interest rates still remain historically low, the days of 2-4% rates are long over. To combat the spike, mortgages lenders have gotten creative to recover potential buyers. Some of these programs include giving them more options to lower their monthly mortgage payments. Here is a great incentive we have seen lenders offering in the Nashville market and would recommend to our buyer clients.
Temporary rate buydowns are one of the most popular methods that mortgage lenders are using right now. Typically paid for by the seller, a buydown provides a lower introductory rate on fixed mortgages for the first year or two. After that, it bounces back to the original mortgage rate. What we’ve seen from our preferred lenders are 2/1 buydowns. A 2/1 buydown is when the interest rate for the first year is 2% less than the original rate and 1% less in the second year. By year three, it is back to it’s original rate. This gives buyers time to grow into their long term payment and help alleviate the upfront costs of owning a home.
To capitalize on even more savings, one of our preferred lenders, Steadfast Mortgage, is also offering a program called ‘Marry the House, Date the Rate.’ Basically, this program is designed to help you refinance your mortgage for free in the next three years (up to $3,500). This program combined with the 2/1 buydown is the best way to combat rising interest rates right now and in the future once your original rate comes back in year three.
Example: 30 Year Fixed Rate 2/1 Buy Down with a Loan Amount of $400K. Buyer amount may be borrower funded, gifted or paid for by seller. Total savings over first two years: $9,103.68.
Buydowns tend to work best when home buyers use them as a negotiation tactic, and ask the seller to pay for the buydown instead of lowering the price of the home. Some sellers will even list their home with a buydown already built in as a way to incentivize you to buy their property. For sellers, spending $10,000 towards a buydown will help the buyer much more than just removing $10,000 off the sales price during negotiations.
If the seller to pay isn’t an option, there are other ways to pay for a mortgage rate buydown. You can cover the cost yourself, receive the money as a gift or finance it into your loan. Here’s how each option works.
Although the market has changed, now is still a great time for buyers to consider getting back out there. There is more inventory than we’ve seen over the past two years and there are less offers to compete against. If you’d like to learn more about 2/1 Buydowns or the home buying process, let’s set up a time to chat below! We would love to help you find the perfect home.
Whether you are buying, selling or building, a complimentary consultation will help our team of experts determine the best strategy for your personal real estate goals. Let us help you begin your journey with a 30-minute introductory call!
@2021 HARMON HOME TEAM
1610 West End Ave., Ste 115, Nashville TN 37203 | 615.522.5100
1610 West End Ave., Ste 115, Nashville TN 37203
@2020 HARMON HOME TEAM