Loan Rate Buy Downs - Working Well

We recently had a buyer client get a rate reduction from 6.25% to 5.5% by having the seller pay points, and we also had all their closing costs paid (& nothing out of pocket to us) - and nice "price off list"

Lets use an example.... For about $18,000, a seller can permanently buy down the interest rate of a $450,000, 30-year loan a full percentage point, shaving $289 a month off the buyer's mortgage payments. That assumes a 10 percent down payment on a $500,000 home, with a 6.5 percent interest rate before the buy-down. In order to give the buyer the equivalent savings through a price reduction, the seller would have to cut his/her price by $45,800.

As a rule of thumb, a seller would need twice the price reduction to equal the buy-down's advantage in savings per month for the buyer. Thus - it is a great thing for us to propose to sellers, for our buyer clients.

Once fairly commonplace, buy-downs all but disappeared during the boom years in the housing market, when interest rates were falling, prices were climbing, and sellers in many regions could count on receiving multiple offers.

You know - if you mention buy-downs to a group of Realtors or loan officers, half of them won't know what you're talking about. It's pretty funny. I guess that shows how long I've been around... Of course - I also remember when there were assumable loans :-)

I talk about buy-downs during our initial consultation with a buyer client. We can show the buyer the difference this makes to them in their monthly payment. We tell them - don't worry about rates in the 6's -- we can most likely get you rates in the 5's due to our negotiation abilities. We can magically "put you back to the time" when rates were the best.

Interest-rate buy-downs can be permanent or temporary. Sometimes - they are phased out over three years, while other times - they are phased out when you reach the time when the ARM will adjust.