One Strategy To Make Your Home More Affordable
Interest rates increasing over the last year have made it more difficult for buyers to purchase a home. No one has a crystal ball, but unfortunately we believe that rates will get worse before they get better. Well we have got some good news! We have a strategy that can help solve this issue of rising rates. The Buyer Acceleration Program or 2-1 Buydown Strategy is a great way to reduce the cost of your home while getting an above market rate mortgage.
The interest rate increase over the last year has made homes less affordable, while the homes themselves have become more expensive. This deadly combination has led to a stagnation in the mortgage and housing industries as buyers are planning to wait and pay their landlord’s mortgage instead of their own. Well, we have some good news! We have a strategy that can solve both problems and make everyone happy. The Buyer Acceleration Program, or 2-1 Buydown Strategy, is a great way to reduce the cost of your home while getting a below market interest rate on your mortgage.
The Buyer Acceleration Program can be used to lower the buyer's interest rate by 2.00% for the first year and 1.00% for the second year. Then for years 3-30, the normal rate would be used. This allows newer homeowners to save money during the most crucial time of their mortgage. This allows clients to get the home they want without having to deal with the sticker shock of their new payment. The plan would then be to refinance later when interest rates come back down to Earth. We use it as a bridge to get clients into their home quickly and within their budget, plus we help them make sure they are saving money on their monthly payments by reducing their interest rate for two years..
How does it work?
So instead of the sellers reducing their sales price, they give that amount to the buyer to pay for the Buyer Acceleration Strategy. So, instead of reducing the sales price by $10,000 they give that $10,000 in seller concessions to the buyer which covers the 2-1 buydown fee. If the buyer gets more concessions than needed, it will go to their closing costs and prepaids, to reduce their monies at closing. You may be thinking that decreasing the interest rate by 2.00% in the first year and 1.00% in the second year does not matter, but it can add up quickly. For example, if we use a $500,000 sale price and a $400,000 loan amount with a current interest rate of 5.50%. For the first year, you would have an interest rate of 3.50% and save approximately $500 per month on principal and interest payments. The second year would save approximately $250 dollars per month with an interest rate of 4.50%. Years 3-30 would have the normal 5.50% interest rate. We have an example of these exact numbers here:
This program works with Conventional, FHA & VA loan programs which is fantastic. The best part about this program is that when you refinance to take advantage of lower interest rates within a few years, the unused buydown balance will be used to reduce your principal balance. Every single time the economy has been in a recession, which we are now in, mortgage interest rates have decreased.
If you are interested in learning how our Buyer Acceleration Strategy program works, please check out our website at: chissellmg.com/ or give us a call at the office, 727-376-6900.
NMLS ID: 327290; NMLS ID: 2062741
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