Buy Down Programs Helping Homebuyers Lower Their Home Payment

A Home Buying Strategy For High Interest Rate Markets

It’s no secret the F.E.D. (Federal Reserve) is raising interest rates to slow inflation and buyers in the real estate market are feeling the squeeze in the 3rd and 4th quarter of 2022. The same $400,000 home now comes with a $2800 dollar payment instead of a $2000 payment and in some instances its causing many first time homebuyers to consider condos or townhomes because they aren’t being approved for as much.  I asked my good friend and top Las Vegas lender Juan Garcia from Gold Star Mortgage to break down some details and explain how the Buy Down program can help homebuyers today in the video below. 

Juan Garcia, lender with Gold Star Mortgage and Alex Juarez Realtor at Perla Herrera Realty explain the buy down program.

In Las Vegas the real estate market has really shifted back to a buyers market where sellers are offering closing costs and just happy to close deals and see their home sold after being on the market for 60 days. The DOM (days on market) during the heavy sellers market was in my opinion probably around 2 days, but officially in the Las Vegas Realtors Data 82.8% of homes closed in 30 days or less in March of 2022, during the most aggressive market. Homebuyers were putting in offers $20k over list price and if it was a luxury home $50k over list price with an Escalation Clause. An escalation clause is when you have terms in your offer which stipulate that you will beat any offer over a certain price with bonafide proof of that offer. So I put in an offer for $415K, with terms that stipulate that my client will beat any offer by $5K until $440K, with proof of that offer. In that type of sellers market, sellers providing closing costs for buyers was extremely rare. That type of market environment was created from low interest rates among a few other things. 

Now that the market has shifted and high interest rates are something we are dealing with, adjustable rate mortgages like the 1-1, 2-1, and 3-1 buy down programs are getting more popular to fight the high monthly mortgage payment. In this type of market where sellers are providing closing costs, can use the funds to “buy down” our mortgage. Essentially prepaying off some of the loan. In the example from the video with a $400K home, and using $8400 toward a buy down it would lower your payment from roughly $2800 to $2500 per month with no extra money out of pocket from the Buyer if you’re using seller concessions. It is important to understand that this program is meant to be used for the short term, because the rates will go back to the 7+-% that was locked in when you completed your deal. The idea is that when the rates are expected to drop in late 2023 the client will refinance to the lower rate. 

This is an excellent strategy for buyers in this type of market because it will combine the low prices, and still have a reasonable mortgage payment. There is a strategy for every type of market and the buy down program is a good way to help buyers right now. 

Reach out today if you have more questions and are interested in learning more! 

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