Source: Bankrate —
Amid higher mortgage rates and a cooling housing market, some home sellers are wooing buyers with a freshly popular incentive: paying for a temporary reduction to the buyer’s mortgage interest rate.
Why are buydowns popular now?
In one common scenario, known as a 2/1 buydown, the seller pays to cut the buyer’s mortgage rate by 2 percentage points for the first year of the loan and by 1 percentage point for the second year.
As rates have surged to 7 percent, that buydown helps reduce some of the sticker shock buyers are experiencing.
“Temporary rate buydowns have been around for a long time, but they’re really only relevant in a market like this, where rates are flying off the handle,” says Dan Catinella, chief lending officer at Total Expert, a company that sells marketing software to mortgage companies.
Some of the nation’s largest lenders, including Rocket Mortgage, United Wholesale Mortgage and Guaranteed Rate, have begun marketing the tactic. Rocket Mortgage advertises its buydown program as an “Inflation Buster.” True to the name, the buydown could reduce the buyer’s monthly mortgage payment by hundreds of dollars.
“A buydown is a way for buyers to feel a little more comfortable,” says Eric Hamilton, senior vice president of mortgage lending at Guaranteed Rate.
During the pandemic-driven housing boom, sellers hardly needed to do anything to unload their homes quickly and for a hefty premium. This year, the housing market has slowed sharply, and sellers face a new reality.
“Bidding wars are starting to go away,” says Catinella. “Sellers are starting to have open houses. Homes are sitting on the market longer.”
As the market starts to reset, buyers are asking for concessions, feel less pressure to bid aggressively and have more time to weigh their options — and negotiate for a better deal.
“Buyers don’t have to go through all these crazy inspection waivers and appraisal waivers,” says Elena Sarantidis, a mortgage broker with Prime Plus Loans in Wellington, Florida.
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