If you’re selling a home, it can be hard sometimes to help your listing stand out among all the homes in your market. You may be tempted to lower your asking price, but you have other options, options that can make your beautiful home a must-have for buyers. Consider a seller buy-down strategy.
What Is a Buy Down?
A buy-down is a way for a buyer to lower their mortgage rate (and thus their monthly payments) by paying discount points at closing. Rather than paying money to reduce the amount of the loan, you instead pay to lower the interest rate of the loan itself. Each point costs 1% of the loan amount (so a $400,000 loan would cost $4000 per point) and the amount of the interest rate a point will lower varies by market and lender.
How Does a Buy Down Help the Buyer?
Lowering the interest rate of the loan means paying less each month and less over the life of the loan. For example (using the Bankrate mortgage calculator) suppose you have a $400,000 30-year loan with a 20% down payment and a rate of 6%. Your payment would be around $2,247 a month. However, if you were to pay points to bring down your interest rate, to the mid 5’s (say 5.6%) you would be looking at a monthly payment of around $2,166 a month, almost a hundred dollars less each month.
Can a Seller Contribute to the Buy Down?
Yes! The buy-down is part of the closing costs of a loan, which a seller can contribute by placing money into escrow. Sellers can work with local lenders to determine how much each point will lower the interest rate of loans so they have an idea of how much they should plan to contribute to the mortgage buy-down.
What Value Does a Seller Buy Down Have for Sellers?
The value of a seller's buy-down for the buyer is obvious: it’s less money the buyer has to contribute to receive a lower mortgage rate. However, offering a seller buy-down benefits the seller as well.
Offering a seller buy-down helps your home stand out in your real estate market
It gives sellers leverage so they don’t need to come down in their asking price
Do you have questions about seller buy-downs? Can we help you or your clients reach their dream of home ownership? Go to www.meetwithmarat.com to schedule an appointment and talk about your or your client's options.