An Old Trick: The 2/1 Buydown Helps with High Rates

Home affordability is a major challenge for home-buyers in today’s market. Data shows that the average home price today is more than six times the median income in Utah. Until recently, that ratio had hovered around three times the median income for decades. This, compounded with interest rates rising rapidly has made it daunting for many of my clients who dream of owning their first home.

We have been using temporary rate buy-down options to help many clients get into a home. The program works like this: The seller agrees to pay the cost of a temporary rate reduction. In most cases, the buyer chooses a 2% rate reduction for the first year of ownership, and a 1% rate reduction for the 2nd year - hence the name: 2/1 buy-down. Other options include a 1/1 and 3/2/1 buy-down. The cost to the seller is typically between $6,000 and $15,000 depending on the price of the home. These funds are then placed in an escrow account and the mortgage company pulls from the account each month to offset the buyer’s payments. I have seen clients save from $500/mo. to $1,000/mo. during the first years of their mortgage with this plan. If the buyer chooses to sell or refinance before the set-aside funds are used up, the funds are paid out to the buyer and can be used for anything they wish. If you have been holding off on buying a home because the payment doesn't’ seem feasible, please give me a call and let’s see if this program can make the difference for you!