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Laura Wucher Pleasant Hill Realtor

Laura Wucher Pleasant Hill Real Estate Agent

Let's Talk Buydowns!

Women signing paperwork for buydown

Let's Talk Buydowns

In today's high-interest rate environment, buydowns may be a viable selling solution for homes as a great asset for potential buyers. Not familiar with buydowns, or have questions? Let’s break it down (with a little help from our friends at JVM Lending.)

Permanent Buydowns:

  • What are they? Also known as points, origination fees, discount points, or lender fees, these are payments made to permanently reduce a borrower’s interest rate.

  • How do they work? They compensate a lender upfront for the lost commission from selling a loan with a lower interest rate. These costs go directly to the lender and can be paid by buyers or sellers.

  • JVM advice: Generally, buyers are advised against them.

Temporary Buydowns:

Home buyer receiving keys after buydown
  • What are they? An escrow account created for the buyer, not lender fees.

  • How do they work?

  • For example, a borrower with a $500,000 loan at a 7% rate and a 3-2-1 buydown:

  • Year 1: Buyer pays $2,387/mo, seller-funded escrow account covers $939/mo.

  • Years 2 & 3: Buyer pays an increasing amount, seller-funded account covers a decreasing amount.

  • Benefit: If the buyer refinances in the 13th month, remaining funds in the escrow account reduce their principal balance.

  • Key point: $0 goes to the lender; 100% benefits the buyer.

What's the Catch?

  • Potential issue: Buyers might focus only on the Year 1 payment and not budget for higher payments in Years 4-30.

  • The solution: For example, JVM requires buyers to qualify at the highest possible payment to ensure they can handle future payments. This strategy allows time for potential wage inflation and rate drops, enabling refinancing without losing benefits.

Need Resources?

Although we are not mortgage brokers, we have great resources to assist you to learn which loan programs might best suit you.

Let's get started today on your home journey!


Laura Wucher Pleasant Hill Realtor

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