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2/1 Buy Down vs Price Reduction

Happy Thursday – I hope you are doing well. If you have been watching the news, you know rates are going up every day. This is continuing to impact affordability in the housing market, but we do have a solution to help until rates come down. My last 2 videos have talked about the 2/1 buy down and I am finding people have heard of it but don’t really know how to properly use it. As explained before, the 2/1 buy down gives the buyer a 2% lower rate in the first year and 1% lower the second year. The issue in the past was that the sellers had to pay the buy down fee and in a low inventory market, it was harder to negotiate. As we head into winter, we are seeing properties sit longer which means we have more room to negotiate. This week, I want to talk about understanding the benefit of the 2/1 buy down for both buyers and sellers so let’s look at an example together. If the seller has their property listed for $450k and it is not selling, they may consider dropping it to $440k. If they go this route, it will only drop the buyer’s payment by about $70 per month. Alternatively, they can offer the buyer a $10k seller credit which allows the buyer to do the 2/1 buy down. Using the buy down will save the buyer over $500 a month the first year and $250 a month the second year. This equates to $10k in savings for the borrower over the first 2 years vs $1680 over two years with the lower price point. In our current market, this is critical because it will allow people to get under contract at a lower rate and be able to refinance once rates come down. The alternative is waiting for rates to drop and then competing with 10+ people and overpaying for the property. If I were a seller, I would build the 2/1 seller incentive into my listing out of the gate to help sell it faster. From a buyer’s perspective it is much better to pay a little more for the home and be able to utilize the 2/1 buy down. Weekly Newsletter

Stewart Sadler Managing Partner Cornerstone Mortgage Group ​404-441-4765 ​ Georgia Residential Mortgage Licensee: 21412 • Company NMLS: 147913 • Individual NMLS: 147938

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