Source: USA Today —
Anna Raymond was ready to make the switch from renting to owning a home last spring. But after five failed offers, she and her husband decided to take a step back from house hunting.
Then, in December, their real estate agent presented an offer too good to pass. A home in Longmont, Colorado, was up for sale, and the seller was willing to offer a 2-1 interest rate buydown.
The concession would lower the Raymonds’ 5.75% contract interest rate 2% in the first year and 1% in the second year, so they’ll pay just 3.75% interest in the first year and 4.75% in the second year before returning to 5.75% in the third. Raymond said they expect to save about $250 a month during their first year as homeowners.
“I think for them, they just wanted a quick sell and for us, we wanted a good price. And so we were able to both be happy in the process,” Raymond, 28, said. “We figure we can refinance within a couple of years and, worst-case scenario, if we don’t, our salaries will catch up.”
Though buyers can’t be sure interest rates will drop by the time they’re ready to refinance, mortgage rate buydowns have become a popular strategy to attract buyers who may otherwise be hesitant to purchase a home under today’s high interest rates.
What are mortgage rate buydowns?
A recent report from RedFin found a record number of seller concessions – offers like mortgage rate buydowns that help reduce costs – in the fourth quarter, especially among cooling “pandemic boomtowns” like Phoenix and Las Vegas.
“About almost 100% of the clients that I’ve had the opportunity to work with since the fourth quarter of last year, even now, are exercising that interest rate by concession from the seller,” said San Diego-based real estate agent Andre Mejia of Connect Realty. “The market has finally shifted.”