A 2/1 Buydown is a way to lower the effective rate while also locking in your downside.  And with the market shifting slightly out of an intense sellers market, buyers and sellers have the ability to negotiate a win-win.

So how does it work?  A Buydown is a seller-funded, mortgage financing technique where money is paid up-front to decrease the interest rate used to calculate the borrower’s monthly mortgage obligation.  The funds are collected at closing and placed into an escrow account.  The escrowed funds are then used to cover the difference between the reduced payment rate and the fully indexed note rate of the Borrower’s mortgage payment for the first 1-2 years.

For a seller, a 2/1 Buydown offer will cost less than a price reduction and could attract buyer interest in a market that is seeing slight cooldowns.

For a buyer, this lower payment is super attractive as it allows them to adjust to a higher priced home and gives them flexibility in their budget for other homeownership expenses. It also gives them a lower rate while they might be experiencing uncertainty at work given the economic slowdown.  The win for buyers over an ARM loan is that they get an even lower rate than an ARM for 1 to 2 years while hoping for a refinance opportunity during a recession.  On the flip side, if rates don’t drop and/or a recession is averted, the 2/1 Buydown is a 30-year fixed, market-rate loan.  There is no risk of their rate going up ever.

In the example below, I used a $600,000 purchase with 10% down.  If a seller is considering a 3% price reduction on their home, netting them $18,000 less at closing; they might want to consider adding a 2/1 Buydown offer for any buyers bringing a full price offer.  A 2/1 Buydown would cost the seller in this scenario $11,892 (over $6k less than a price reduction) and give the buyer a payment that is $655 less every month in year 1 and $336 less in year 2.  A buyer could alternatively apply this seller credit to a permanent rate reduction as well, but this amount would drop the rate approximately 0.625%, saving a buyer instead only $254 a month.

Working with a lender who understands the opportunities and program limitations on these buydowns is crucial.  Which of course is why I will be working this weekend and would love to not only put this strategy together for you… but also include 2 week closings, earnest money guarantees, appraisal waiver verifications before putting in an offer, the $1000 refinance certificate, and a matched $1500 lease buyout.  Talk about opening the door for conversations, education, and opportunity. I’ve got you!

Want a flyer on the 2/1 Buydown?  Head over to our Agent Ignite FB Group.. it’s ready to download and can be co-marketed upon request.

Interest rates spiked on news of a higher than expected CPI a week ago moving the 30-yr fixed rate from 5.55% to 6.18% in 2 business days.  This week the 10-year treasury moved into a more sideways pattern as European markets saw a slight decrease in their Purchasing Managers’ Index (PMI) numbers which is a leading indicator to a lower GDP and a slowing economy.  Prices also saw a slight drop inside these numbers promoting a slightly lower forecasted inflation here in the states.  This gave us some relief and moved rates back into the 5’s