What is an Extreme Buydown?
The housing market has undergone tremendous change in recent years that affects everyone during the home buying and selling process.
Not only are home buyers concerned about rising interest rates, but many sellers are also finding that their house’s increased value makes it harder for prospective buyers to afford the mortgage.
Fortunately, an extreme buydown is a potential solution that helps everyone achieve their goals.
What Is an Extreme Buydown?
Buydowns have long been a strategy used by home buyers, who typically purchase points that they can use to lower the interest rates on their mortgage loan. In some cases, sellers cover these costs as part of their concessions.
While this helps make mortgage payments more affordable, it is not always enough to help a buyer afford the asking price for a home.
Extreme buydowns work a little differently since they involve having the seller offer the buyer 3% of the home’s value toward buying down the interest rate, which significantly increases the savings for the buyer.
How Does It Help Buyers?
Offering a larger percentage to buy down the interest rate as a seller concession makes it possible for a buyer to then be able to afford a home with a higher value.
For example, being able to save $200 a month allows a buyer to now consider purchasing a house with a value that is approximately $36,000 higher than what they could afford before the extreme buydown.
As a buyer, this means that you could afford the house of your dreams or one that fits your lifestyle better without having to worry about how you will make those monthly mortgage payments.
What Are the Benefits For Sellers?
Naturally, the big question is how this helps sellers, since they are technically giving up a portion of the asking price in the deal.
Offering buyers 3% towards buying down the interest rate is a strategy that can help sell the house faster. For sellers who are currently paying two mortgages, making a fast sale saves more money over time.
Builders and sellers who continue to stay within the same community also prefer this option, because it allows them to sell the home at its value, and the surrounding homes do not lose theirs.
In a constantly changing housing market that is tighter for both sellers and buyers, it is necessary to be willing to be aggressive with the strategies that you use, no matter which role you are playing in the home buying process.
Keep in mind that extreme buydowns are only one of several different options that you can use to make the process easier, so be sure to work with your loan specialist to find the one that works best for your situation.