By Connie Kim | HousingWire
It’s a terrible time for homebuyers. Mortgage rates for a 30-year fixed-rate loan are hovering around 7% levels and still-high home prices are slashing purchasing power.
What helped Erica Davis, a loan originator at Guild Mortgage, in the current high-rate environment is a seller-funded temporary 2-1 rate buydown. By taking advantage of the 2-1 temporary rate buydown, Davis was able to lower her 7.25% mortgage rate by 2% in the first year and by 1.5% in the second year. The seller, who struggled to find a buyer in a cooled down housing market, agreed to deposit a lump sum payment into an escrow account at closing – ultimately saving Davis $6,900 in monthly payments in the first two years.
“Absolutely I’m going to refinance when the rates go down, and that’s why I decided on a 2-1 rate buydown,” Davis said. “It helps to have that lower payment, and the extra cash flow gives you a little more flexibility, so you’re not so budget-tight.” In a high-rate environment, lenders call the temporary rate buydown a win-win strategy for both sellers and buyers when used appropriately. Despite homeowners being disincentivized to give up their low mortgage rates and move, buyers are still out there, and the silver lining for buyers is softened competition compared to the red-hot housing market from the past two years.
“As rates increase and housing prices correct in 2023, sellers will want to take advantage of improving their chances to do business with an excited buyer who can obtain a lower than market rate with seller participation,” Jeff Miller, vice president of Pacific Northwest at Churchill Mortgage, said.