Whether you are a buyer or seller of a Northwestern Wisconsin home, you should know about mortgage buydowns! Buydowns may be offered by home builders and other sellers as a buyer incentive. It’s a way to sweeten the deal without lowering the price.
A buydown is pre-paid interest, similar to mortgage points. The interest rate reduction may be temporary, applying to the first three years of the loan, or less. For example, a 3-2-1 buydown would work like this:
- 3% reduction in the rate during the first year of payments
- 2% reduction in the rate during the second year
- 1% reduction in the rate during the third year
- Full interest rate starts at the fourth year
There are also 2-1 buydowns and 1-0 buydowns, meaning that the interest rate is reduced for two years, or just one year, respectively.
For sellers, offering a buydown can be less expensive than a price cut. If the home is worth $500,000, and the buyer offers $475,000, you’d lose 25k. But if you countered with a price of $500,000, and a credit for a 2-1 buydown, you’d pay about $9,100 towards the buyer’s financing, and keep $15,900 more in your pocket.
For buyers, getting a buydown gives you some relief from today’s higher rates. However, not all mortgage lenders allow sellers to pay for a buydown. Also, you may need to qualify for the mortgage at the undiscounted rate. Ask your lender if seller-paid buydowns or points are allowed for your mortgage. It’s good to know!
Buying or selling Northwestern Wisconsin real estate? Trust the experts! Six Lakes Realty is a locally-owned family business with over 45 years of experience. Contact us today for friendly, hometown service!
Six Lakes Realty
Office: (715) 924-4806