Do Buy downs Make Sense Today?

[Terry Ross]

My answer is YES!

Odds are with the mortgage market in it's current state people will begin to move less often. That means a better chance at recovering your investment to buydown the rate.

I recently locked 100% financing at 5.375% using a 3% buydown, WHICH WAS PAID BY THE SELLER!!!

The client didn't need seller contributions so we raised the sale price by 3% and used the concession to buy down the interest rate.

This was a relatively small loan at only $150k, but the monthly savings was $125 after the increased cost of rolling in an extra 3% to the loan amount.

This means the customer recovers all the investment after 36 months

After that it is like putting $125 a month in the bank.

Of course, this money could have also been used to qualify the client for another $20k in house, but I wouldn't recommend using that as a strategy. I believe in conservative home buying.

Terry Ross, CMPS


Certified Mortgage Planning Specialist

Benchmark Mortgage

Phone: 832-473-8795


Homebuyers visit: www.TheLoanSquad.com

[Bruce Brown]

I'm in total agreement with you Terry. In fact, I can't think of any market where a buydown structured like you described wouldn't make sense. This is a strategy we use with our purchase mortgage loans all the time and we've been doing it for years.

The key to the amount of the buydown is how long the client believes they will live in the home OR need to refinance for cash out for other purposes down the road.

In the many analysis I've run over the years I don't find that it is usually smart to go more than 3% which should equate to about 3/4% in rate as you reach a point of diminishing returns with the cost to even drop another .125% or .25%.

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