How buyers can use 2-1 buydowns to make homes more affordable.
Today, I want to discuss a topic that has been a concern for many over the past year - interest rates. As interest rates have steadily risen, currently hitting a 30-year high, it’s not an ideal scenario for either buyers or sellers trying to attract buyers. These higher rates have resulted in progressively increasing monthly payments, which can be daunting for many. I’ve heard people expressing reluctance to buy until interest rates come down. However, there’s a lesser-known option that can provide a solution, even in a high-interest rate environment. It’s called a 2-1 buydown.
Now, I want to clarify that I’m not a loan expert or a licensed loan officer, so I won’t provide specific numbers. I’m sharing a general idea of how this concept works. Essentially, a buyer can opt to contribute some extra funds, or a seller can offer a contribution to lower the interest rate for the first two years of the loan. The amount required can vary, so it’s crucial to consult a licensed loan officer for precise figures tailored to your situation.
“Once your rate returns to normal, you can refinance. ”
Here’s an example to illustrate: Suppose the initial rate is 7.5%. By investing a substantial amount (let’s say $10,000 or an amount that aligns with your situation), the rate can be lowered by two percentage points. So, instead of 7.5%, it becomes 5.5%, making the monthly payments more manageable. This reduced rate remains in effect for the first year. In the second year, the rate increases slightly, but not to the original rate.
The key idea is that experts believe interest rates may decrease in the future as the economy unfolds. So, securing a lower rate for at least a year, or possibly two, can provide short-term relief. Afterward, refinancing might become an option to secure a better long-term rate.
I’ve covered the basics of this concept, but there are nuances involved, as with any financial decision. If you or someone you know could benefit from this approach, call or email me, and I can connect you with a skilled loan officer to discuss your options. We don’t want affordability to be a barrier to homeownership.
