Hello there, readers! It’s your trusted duo, Ashley Tullis, a real estate maven and best Realtor in Dripping Springs, and Bill Roegelein, our go-to money guru in Dripping Springs and all of Texas. Today, we’re breaking down a term that’s echoing through the homebuying sphere: the 3-2-1 Buy Down. It might sound like a catchy pop song lyric, but trust us—it’s all about helping you navigate the intricacies of mortgages.
Buydown Market for Home Buyers
We’re currently in what Ashley coins a “buyer ball game.” It’s a time where buyers have the leverage and can capitalize on the generosity of sellers, particularly when it comes to concessions. These concessions can be used strategically in what’s termed a ‘Buy Down’.
Permanent Buydowns vs Temporary Buydowns
A permanent buy down involves utilizing seller concessions to lower the interest rate permanently. But there’s a twist. Despite what many might think, there isn’t just one interest rate when buying a home; there’s a myriad to choose from. The one that doesn’t cost extra is termed the ‘par rate’. Currently, that seems to be hovering around 8%.
On the flip side, a temporary buy down, like the 3-2-1, allows the homebuyer to reduce their rate temporarily. This method, as Bill Roegelein elaborates, provides flexibility and savings for the buyer.
Buydown: A Way To Reduce Interest Rates
Imagine you’ve locked in an 8% rate. With the 3-2-1 buy down, your interest rate for the first year would effectively be 6%. In the second year, it bumps up to 7%, and by the third year, it’s back to the original 8%. The allure here? Rates fluctuate. If they drop, you can refinance without ever having to deal with that 8% rate.
Let’s say a generous seller gives you $15,000 to apply towards a 3-2-1 buy down. If you decide to refinance in the second year, and there’s still, say, $7,500 left of that money, it gets redirected straight back to you as a principal payment.
What this means for buyers, especially in this market, is unprecedented leverage. As Ashley hints, the moment rates dip below 6%, we might see a buying frenzy similar to 2021 and early 2022. But with strategies like the 3-2-1 buy down, buyers can powerfully shop without getting embroiled in bidding wars, ensuring they get the best deals.
In conclusion, while 8% might not seem appealing on the surface, with the right strategies and a bit of financial acumen, it can actually work in your favor.
Stay tuned for more insights from Ashley Tullis and Bill Roegelein. Until next time, happy house hunting!
Frequently Asked Questions about 2-1 Buy Down?
How does a 2-1 rate buydown work?
How much does a 2-1 buydown typically cost?
How do you calculate a 2-1 buy down?
What are the cons of a 2-1 buydown mortgage?