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Unlocking the Power of Buydown Mortgages: A Game-Changing Strategy for Buyers and Sellers

June 27, 2023 by Kevin Martini

In today’s real estate market, having a well-planned mortgage strategy is crucial for buyers who want to stand out and increase their chances of getting their offer accepted. Logan Martini with the Martini Mortgage Group offers a game-changing mortgage strategy allowing buyers to control the transaction and set the pace. One of their advanced strategies is the buydown mortgage, which offers immediate savings and introduces a new dynamic to property transactions.

A buydown mortgage involves the seller contributing funds to lower the buyer’s mortgage interest rate. This unconventional approach benefits both the buyer and the seller, satisfying the buyer’s desire for a lower cost while allowing the seller to maintain the sales price and maximize profits. It transforms the transaction into a win-win situation for both parties.

There are two types of buydowns: temporary and permanent. A temporary buydown lasts for a specific period, usually, one to three years, during which the seller pays a lump sum to reduce the buyer’s interest rate. On the other hand, a permanent buydown lowers the interest rate for the entire loan term and requires a more significant contribution from the seller.

While requesting a seller to buydown the mortgage rate may initially seem like asking them to make a financial sacrifice, it can actually be an appealing option for sellers. By avoiding a reduction in the sales price, sellers can expedite the sale process, especially in markets where lowering the price may result in a faster sale.

Four Benefit from Permanent Buydown with Seller-Paid Points

As a primer, “Seller-paid points” are where the seller pays points to reduce the interest rate on a mortgage. One point = 1% of the loan amount paid upfront to your mortgage lender at the closing. This buys you a lower interest rate on your mortgage and a lower monthly payment. 

  1. More Purchasing Power — Paying points to reduce your rate can have 2-3 times the impact on your purchasing power vs. reducing the purchase price by that same amount. For illustration:
    • 2 points on a $500,000 mortgage = $10,000. You’d probably need to reduce your purchase price by $20,000 – $30,000 to have the same impact on your monthly payment.
    • 2 points on a $1,000,000 mortgage = $20,000. You’d probably need to reduce your purchase price by $40,000 – $60,000 to have the same impact on your monthly payment
  2. Less Interest Costs Over The Life Of The Loan  — Your total savings over the life of the loan is likely to be significantly more with seller-paid points vs. a reduction in the purchase price. It could end up being 2-3 times the impact, depending on the specifics of your situation.
  3. Easier to Qualify For A Mortgage — Your interest rate and monthly payment would all be lower with seller-paid points vs. a reduction in the purchase price. This means that your debt ratio would also be lower, and it would likely be easier for you to qualify for financing.
  4. BOTH Buyer And The Seller Get A Tax Benefit — Seller-paid points are tax-deductible to the buyer if the buyer itemizes their tax deductions. Meanwhile, sellers can deduct points paid on behalf of the buyer against their capital gain when they sell the property. The seller-paid points are considered a “cost of sale.” Please see IRS Publication 936 for more details.

Here are four ways a seller can benefit from this strategy:

  1. Their House Becomes More Affordable To a Wider Pool Of Buyers — Paying points on behalf of the buyer can have 2-3 times the impact on the buyer’s purchasing power vs. reducing your list price. That’s because most buyers use mortgage financing. In other words, instead of lowering the list price, agree to buy down the buyer’s interest rate. This increases the buyer’s purchasing power and makes your house more affordable to a broader range of buyers who may have otherwise been priced out of the market.
  2. Seller Could Save Money Vs. Lowering Their List Price — A seller would have to reduce your list price by 2-3 times the number of points paid to have the same impact on the buyer’s monthly payment. 
  3. Seller Gain A Competitive Advantage Vs. Other homes Listed For Sale — Seller-paid points could give a seller a competitive advantage in today’s changing market. This could save you the aggravation and financial loss of significantly reducing your list price to compete with other homes that may be listed for a lower price.
  4. BOTH Buyer And The Seller Get A Tax Benefit — For more details, please see IRS Publication 936 or consult with your tax professional.

How A Buyer Can Benefit From A Temporary Buydown

As a primer,

There are 3 types of temporary buydowns (e.g., 1-0, 2-1 and, 3-2-1).  

A “1-0 Buydown” is where you or the seller pay a fee at the closing to reduce the interest rate on your mortgage by 1% in year 1. This results in temporarily lowering your monthly payment and potentially making the home more affordable to a buyer.

A “2-1 Buydown” is where you or the seller pay a fee at the closing to reduce the interest rate on your mortgage by 2% in year 1 and 1% in year 2. This results in temporarily lowering your monthly payment and potentially making the home more affordable to a buyer.

A “3-2-1 Buydown” can sometimes also be used, although a 2-1 Buydown is more common. A 3-2-1 buydown is where you or the seller pay a fee at the closing to reduce the interest rate on your mortgage by 3% in year 1, 2% in year 2, and 1% in year 3.

What Are the Benefits Of A 2-1 Buydown With The Martini Mortgage Group?

A 2-1 Buydown reduces your interest rate and monthly payment during the first few years of homeownership, making the home more affordable for you. It can also allow you to benefit from owning a home now so you can start to build equity vs. waiting a few more years and continuing to rent. If the seller pays for the 2-1 Buydown, it would have a much greater impact on your monthly payment than asking the seller to reduce the list price of the home. This could be a great negotiating tool because a greater percentage of homes listed for sale in today’s market are seeing price reductions.

What Happens When The Interest Rate Goes back To Normal?

In year 3 of a 2-1 Buydown, your interest rate would adjust to its normal “note rate.” If market interest rates are the same or higher than they are today, you would just keep the loan and pay the normal payment. However, if a recession happens, as is being predicted by many economists, mortgage rates may come down again. In that case, you may be able to refinance at the then-current rates. Keep in mind that interest rates are cyclical. They tend to go up when the economy is doing well, and they tend to go down when the economy is doing poorly. 

How A Seller Can Benefit From A Temporary Buydown?

When a seller offers to pay for a 2-1 buydown it could give the transaction a competitive advantage vs. other homes listed for sale in today’s changing market. That’s because interest rates have more like riding a roller coaster than a merry-go-round in recent years, creating an affordability crisis for many potential buyers. A 2-1 buydown could also save you the aggravation and financial loss of having to significantly reduce your list price in order to compete with other homes that may be listed for a lower price.

martini factor bottom line

Utilizing a mortgage strategy such as buydown mortgage, can be a powerful tool for both buyers and sellers. By understanding and effectively communicating the benefits, buyers can enhance their purchasing power, while sellers can attract more potential buyers and potentially save on costs. Working with a Mortgage Strategist like Logan Martini from the Martini Mortgage Group can provide valuable insights and help buyers and sellers navigate the complexities of the real estate market.

raleigh mortgage broker logan martini

Logan Martini | NMLS 1591485 | Senior Mortgage Strategist | Martini Mortgage Group at Gold Star Mortgage Financial Group, Corporation | NMLS # 3446 | 507 N Blount St, Raleigh, NC 27604 | (919) 238-4934 | www.MartiniMortgageGroup.com | [email protected] | Equal Housing Lender

Filed Under: 1-0 Buydown, 1-0 Seller Paid Buydown, 2-1 Buydown, 2-1 Seller-Paid Buydown, 3-2-1 Buydown, 3-2-1 Seller Paid Buydown, Affordability, Buy a Home, buydown, buydown mortgage, Buydowns, competitive advantage, Logan Martini, Mortgage Broker, Mortgage Rates, mortgage strategy, permanent buydown, Raleigh, Raleigh Mortgage, Raleigh Mortgage Rates, Real Estate, real estate market, temporary buydown Tagged With: buydown mortgage, Buying a Home in Raleigh, Logan Martini, Martini Mortgage Group, mortgage strategy, Mortgage Tips, permanent buydown, qualifying for a mortgage, Raleigh, Raleigh Mortgage Broker, real estate market, temporary buydown

Raleigh Mortgages 101: Understanding What They Are and How They Work

April 3, 2023 by Kevin Martini

Buying a home is a big decision, and for most people, it requires taking out a mortgage. However, if you’re not familiar with the world of mortgages, it can be confusing and overwhelming to understand what they are and how they work. In this article, Raleigh mortgage broker Logan Martini provides a comprehensive guide to mortgages, covering everything from the basics of what a mortgage is, to the application process, to tips for getting the best mortgage for your needs. Whether you’re a first-time homebuyer or looking to refinance your current mortgage, this informative article will give you the knowledge and tools to make informed decisions about your mortgage

What is a Mortgage?

A mortgage is a loan that you take out to buy a property. It is usually provided by a bank or a lender, and is secured by the property itself. This means that if you fail to repay the loan, the lender has the right to take possession of the property and sell it to recover their money.

Mortgages come in different types, but they all have the same basic features. They have an interest rate, which is the cost of borrowing the money, and a term, which is the length of time you have to repay the loan. Most mortgages are paid back in monthly installments, which include both the principal amount borrowed and the interest charged.

How Does a Mortgage Work?

To get a mortgage, you’ll need to apply to a lender and provide information about your income, expenses, credit score, and the property you want to buy. The lender will use this information to determine how much they are willing to lend you, and at what interest rate.

Once you have been approved for a mortgage, you will receive a loan agreement that outlines the terms of the loan. This will include the interest rate, the term of the loan, and any other fees or charges you will have to pay. You will also need to provide a down payment, which is a portion of the purchase price of the property that you pay upfront.

After you have signed the loan agreement, you will start making monthly payments to the lender. These payments will include both the principal amount borrowed and the interest charged. Over time, as you make your payments, you will gradually pay off the loan and build equity in the property.

Tip for Getting the Best Mortgage at with the Best Terms

Getting a mortgage can be a complicated process, but there is one thing you can do to make it easier and more affordable.

While it may seem that all lenders offer similar products and rates, there are still important reasons to shop around for a mortgage. By comparing offers from multiple lenders, you can find the best deal for your needs and potentially save thousands of dollars over the life of the loan.

However, it’s not just about finding the lowest rate. It’s also important to work with a lender who takes a fiduciary approach and prioritizes your best interests. This means ensuring that you are deploying the proper mortgage strategy for your unique financial situation and goals.

Furthermore, a frictionless process and strong mortgage management post-closing can make a significant difference in your overall experience as a borrower. By choosing a lender who offers excellent customer service and support, you can enjoy peace of mind knowing that you are in good hands throughout the entire mortgage process.

The Logan Martini Bottom Line

A mortgage is a type of loan that can help you buy a property. It comes with an interest rate and a term, and is secured by the property itself. To get the best mortgage strategy for your needs it’s important to work with a lender who takes a fiduciary approach and prioritizes your best interests – as a mortgage strategist with the Martini Mortgage Group, this is what I do.

Making an informed decision about your next move is crucial, whether you’re a first-time or repeat homebuyer. When it comes to homeownership, having certainty about your financing options is the proper first step, regardless of your level of experience. This way, you can confidently search for your dream home armed with price and cost clarity.

Let’s connect and discuss the proper mortgage strategy for you and your family. Whether you’re ready to take the leap into homeownership or simply want to explore your options, I’m here to help you make the best decision for your unique situation. Contact me today!

logan martini

Logan Martini

Senior Mortgage Strategist | NMLS 1591485

(919) 238-4934

    Filed Under: Buy a Home, Home Loans, Logan Martini Tagged With: borrowing, Credit Score, down payment, equity, finance, home buying, home ownership, Interest Rates, lender review, loan agreement, loans, Logan Martini, mortgage application, mortgage management, mortgage process, mortgage rates, mortgage strategy, Mortgage Tips, mortgages, pre-approval, property ownership, Raleigh Mortgage Lender, Real Estate

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      Martini Mortgage Group at Gold Star Mortgage Financial Group, Corporation | NMLS # 3446 | For licensing information go to: www.nmlsConsumerAccess.org and/or www.GoldStarFinancial.com Please review our Disclosures & Licensing information | Gold Star Mortgage Financial Group Corporation has no affiliation with the US Department of Housing and Urban Development, the US Department of Veterans Affairs, the US Department of Agriculture or any other government agency. Equal Housing Lender. For further information about Gold Star Mortgage Financial Group, Corporation, please visit our website at www.GoldStarFinancial.com. Receipt of application does not represent an approval for financing or interest rate guarantee. Applicant subject to credit, acceptable appraisal, title, and underwriting approval. Not all applicants will be approved. Other terms and conditions apply. Contact Gold Star Mortgage Financial Group, Corporation for more information and up-to-date rates.

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