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Buyers and Sellers Team Up on Financing- Part 2

Buyers and Sellers Make Ends Meet

Last week, we began with a premise…that Buyers have a WANT (the lowest monthly payment, even more than the lowest Sales Price) and Sellers have a NEED (to differentiate their home from all the others on the market), and that creative approaches to financing is a method to satisfy both Buyers and Sellers.  Part I of this three part series discussed FHA ARMs, today we will talk about 2-1 Buydowns.  Buydowns can be done on practically any fixed rate mortgage (Conventional Loans, as well as FHA Loans).

This is how they work:

Someone (typically the Seller as part of the Sales Concession, but it could be any interested party) puts up money to “buydown” the interest rate on the mortgage.  In that way, a Buyer will receive a FIXED RATE LOAN, that has lower payments for the first two years.  For example, if today’s 30 year fixed is at 5.5%, the Buyer would make payments for the first year calculated at the rate of 3.5%, payments for the second year at 4.5%, and then move to the 5.5% rate for the balance of the loan term.  Basically, the money deposited in the buydown account will be tapped into monthly to make up the difference between the 3.5% (or 4.5%) and the required 5.5% in the Mortgage Note.

It sounds a bit more complicated than it is.  Simply, the difference in the payment is pre-paid and deposited in the buydown account.

Benefit for the Buyer:

Lower payments for the first two years which is usually the toughest cash flow time because Buyers want/need furniture and such.  And they can do it with a FIXED Rate, not worrying about what happens in the future (like they do with an adjustable rate mortgage).

Benefit to the Seller:

All things being equal with the other homes for sale in their neighborhood (style, school district, price, etc.), their home is more attractive to a Buyer because of the cash flow savings.  Bottom line– it’s DIFFERENT!

Sellers, work with your agent and a loan officer to figure out how to use this tool to market your home more effectively to help it stand out.  Buyers, talk to your agent and loan officer to structure your offers correctly to take advantage of this opportunity.

Next week…..Purchase Reverse Mortgages!

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