While there is a lot of uncertainty in the market, there are a lot of buyers that want to buy and take advantage of the deals and there are sellers that do need to sell. The biggest concern on the buy side is whether or not they can make their mortgage payments due to the rate increases so, there are some ways we are getting creative in putting deals together that create a win-win for both the buyer and the seller and one of those things is a temporary rate buy-down.
So how does a mortgage rate buy down work?
For instance, hypothetically speaking if the rates are at 6% and you opt for 2-1 buy down. That means that at year 1 your rate will be 4% for the first year, saving you X a month, and 5% for the second year, saving you X a month, and then you take the total savings for the year which is X and we ask the seller to credit you this amount toward closing costs vs reducing the price and that money goes into an escrow account that the lender holds to make the payments on the rate difference. Now the buyer has lowered their monthly payments for 2 yrs and gets what they want and the seller is happy because they sold the house without significant adjustments, it’s a win-win.
This also works on a 3 yr pattern as well and by year 2 or 3, the hope is that the rates are not as high and you can refinance into a different product with a lower rate or to the alternative, if the rates go down lower than your buy down rate and you want to refinance, the money that the seller credited could go toward closing costs to refinance the loan or will go toward paying down your principal reduction of the loan.
If you would like to explore this option or need help buying a home in San Francisco please reach out to us.