All Forum Posts by: Dominique Guinnane

In addition to what others have said.

I think the temporary buydowns make the most sense right now. 2/1 buydown was already mentioned, there's also the 3/2/1 and just the 1 as (rarely used options).

I think the big advantage right now is the furniture and remodel budget. A lot of people can swing the 6% on a permanent basis, but not in years 1 and 2 when they have to buy all the "accessories" that come with a new home, like the new furniture, the redone kitchen, landscaping the yard, bla bla bla.

By frontloading the monthly savings into year 1, poof, we've created a furniture budget. 

I see you are in my neck of the words, the Bay Area. On a $1m mortgage, 6% is a $5995 P&I payment. If there's a 2/1 buydown, the 4% in year one puts it at $4774. At $1221/mo savings, that's $14,652 in year one. Now you can afford furniture without swiping a credit card. 

KISS. "Keep it simple, stupid." Now you can afford furniture in spite of the high mortgage rates. Couldn't be simpler. 

As mentioned, ensure that client is working with a lender that will refund any remaining 2/1 buydown funds in the event that they refinance before the 2nd year is up, since my crystal ball says that's (beep boop boop) about 87.2% certain to happen (Barry Habib, two three time crystal ball award winner [literally, and among other accolades], agrees btw, though his crystal ball unlike mine does not have the scienterific precision to pin it at 87.2% exactly). Assuming that is done, the 2/1 temporary interest rate buydowns are guaranteed to break-even. Permanent rate buydowns usually have 5-7 year break-even points, though lately 3-5 is more common with some lenders, but that still means an 87.2% chance of NOT breaking even, since 3 years is longer than 2 years.

@Dominique Guinnane - Comparing a permanent rate buy down (standard rate buydown) vs a temporary buydown are two different scenarios.  Did they cover both of those in the presentation?

Permanent rate buy down is not that great IMO, especially in a high rate environment when a lot of people will refi within 1-2 years of owning the home if/when rates come down.

Temporary rate buy downs are great right now - The seller funds a 2-1 temporary rate buy down.  The borrower gets a 30 yr fixed at 6%, but the first year they only pay 4% instead of 6% (that is the 2), the second year of the loan the borrower pays 5% instead of 6% (that is the 1).  Years 3-30 its 6%.  With our lenders, if the borrower refi's or sells the home they get refunded the remaining balance that the seller paid for the temporary buydown, since the lender holds it in their own escrow account.

Its a dollar for dollar subsidy basically, seller funded to help the borrower the first couple years in the loan.  It makes things more affordable now, with the goal being to hopefully refinance in a year or two.  Of course, the borrower must be comfortable with the 6% for the life of the loan.

For some situations, this is perfect.  One spouse is getting out of nursing school in 6 months and will start making money, or one spouse is expecting a raise shortly, etc etc.

@Dominique Guinnane I think this should be addressed from the listing perspective and the buyer's perspective:

1. Listing Agent - If you are the listing agent, you don't get to see what the financing terms are for the buyer.  You might have a blanket statement on your purchase contract....but you are not seeing if the seller concessions is being used to buy down the rate permanently or if it's a temporary buy down (Like a 3-2-1 buydown).  From your perspective, it's just seller concessions.  And the buyer can use it towards anything really.  I have seen some listing agents market this feature...and that's good to do to generate interest...but you'll never know for sure what those seller concessions are used towards. Not really sure how the presentation you saw was "spinning" this as a benefit...I mean, I guess it is a benefit if they still sell their home...but make no mistake, this is real money that your seller is giving up in order to pay for a feature on the buyer side.  That's money out of their pocket and into someone else's pocket.  If the buyer doesn't need the concessions then maybe a reduction might be more appropriate but some of these details are to be worked out in the negotiation process.

2. Buyer's Agent - If you are the buyer's agent, generating interest in potential clients is really important right now.  And getting your potential buyer prequalified with a lender that offers these types of buy downs are critical, especially if that buyer is on the fence.  The 3-2-1 buydown that I mentioned above will keep the buyer's rate 3% below their qualifying rate the first year, 2% the 2nd year, and 1% the 3rd year.  So they will gradually be brought up to the qualifying rate.  And to be clear this type of a buydown DOES NOT solve any DTI issues. The buyer STILL MUST BE QUALIFIED AT THE HIGHEST RATE to get this loan.  Now a permanent buy down option (where they just pay points in a traditional manner) can solve some minor DTI issues.  Again, a lender must be able to speak to these options in order to guide the client and even measure out how to approach their needs and concerns appropriately.  And then if they can only qualify for X type of a loan (or will only buy with X type of a loan) then you, as the buyer's agent, now know how to negotiate with sellers.

*WHEW*  I know that was a lot but I hope that makes sense how I am describing it.  Feel free to post about anything else.  Thanks!