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In a word, the current real estate market right now is stuck in gridlock. It is very frustrating to watch unless you are a homeowner completely content with your home and with no goals to move. If you are a frustrated homeowner who wants to move or a frustrated buyer who wants to buy, this moment in the market can seem like it is dragging out forever!
If your current living situation just is not working and you don’t feel like you can wait much longer, here are options to consider:
Buyers
If you want to buy a home, but are feeling stuck because of financial reasons, you are not alone. Recent interest rate changes have made mortgage rate payments out of reach for some buyers for the type of home they wanted to buy, but did you know there is an option to get that interest rate lower? An Interest Rate Buydown lets you get a mortgage at a lower rate. Buyers can use this as a negotiating tool, especially with properties that have been on the market for a while.
Consider a property that is priced at $500,000 that has been on the market for several weeks. We know it is overpriced because it is still on the market. A buyer could decide to make an offer below list price – let’s say $475,000. Or the buyer could instead ask for the seller to pay $25,000 towards an interest rate buydown. There are temporary one-, two-, three-year buydowns, and even permanent buydowns.
Let’s say our loan amount is $400,000. One “point,” or 1% of the mortgage amount, can buy down the interest rate permanently by one quarter-percent. If the seller puts $24,000 towards the buydown, that can reduce the interest rate by 1.5%. It can be a huge difference. Let’s compare a price reduction versus a buydown:
| Scenario | Purchase Price | Loan Amount | Interest Rate | Monthly Payment | Total Interest Paid |
| Price Reduction | $475,000 | $375,000 | 7.0% | $2,494.88 | $558,036 |
| Buydown | $500,000 | $400,000 | 5.5% | $2,271.16 | $417,616 |
Monthly payment includes principal and interest only on a 30-year fixed rate mortgage. This is not a guarantee of a loan or that terms are available.
A permanent buydown can be a great way to lower the monthly payment and save a lot of money in the long run.
Sellers
Most sellers have a low interest rate mortgage that they don’t want to “trade in” in order to buy another home. The buydown option listed above could be a strategy you employ on the buying side. Even if you want to be competitive and buy something that hasn’t been on the market for a while, strategically positioning your home on the market to attract the most buyers and get top dollar can allow for additional dollars to be utilized towards a buydown.
For both buyers and sellers – some lenders also offer a free refinance option should rates come down in a certain timeframe, so that might be another avenue to explore. I am here for all of your questions!
