What you need to know about using 2-1 buydowns to lower your rate.
Mortgage rates have been on the rise, so we’ve been exploring solutions for our buyers. Fortunately, I have a bit of good news: They are showing a slight decrease, which is encouraging. To navigate this situation effectively, we’ve been employing creative strategies and negotiating with both the seller and buyer. One approach of the best and most consistent solutions we’ve found is called a “2-1 buydown.”
Here’s how it works. First, we negotiate with the seller to pay the upfront cost. From there, your mortgage rate for the first year of your loan is 2% lower. Then, it’s 1% lower for the second year of your loan. After that, your rate returns to normal; however, interest rates will likely be lower by then, so you can just refinance to a lower rate.
Rather than negotiating for a lower purchase price, we sometimes propose going in at full price or even slightly above, ensuring the appraisal aligns, and then requesting the seller to reimburse the difference. This additional amount can then be applied to the rate buydown.
“You need to get creative with your approach. ”
This strategy works because sellers are willing to give big concessions for strong offers on their homes. For instance, we recently negotiated $10,000 above the listed offer for a seller, which covered the buyer’s closing costs and contributed to a rate buydown.
Getting creative with these approaches not only minimally impacts the buyer’s monthly payment but also maximizes savings, especially when applied toward rate buydown rather than the purchase price or loan amount.
This loan product can be a little complicated, so if you have questions about navigating this market as a buyer, please call or email us. We are always willing to help!
