Let’s Talk About Interest Rates: 2:1 Buydown Loan Program

Interest rates, interest rates! That is all that is being talked about right now when it comes to real estate. Well today, I am hoping to give you a little perspective and tell you about a program that is being offered by some lenders to help get buyers into homes. 

Media headlines are talking about the shift in the housing market and even sometimes referring to a “crash.” You may be thinking that is going to be a bubble that bursts. In the media it can be hard to discern what is true and what is just a headline to get your attention. A lot of buyers are concerned that the market is going to be just like the crash of 2008 but here are a few reasons why this market is not the same:

There is still more demand for homes then supply

Currently, in Dallas-Forth Worth the current inventory is 2.8 months at the current sales pace which is much lower than during 2008. There just isn’t enough inventory on the market for home prices to crash. What we are seeing with home prices is a price correction versus a price reduction. If you see homes decreasing in price that is because they home may have not been priced correctly to begin with and the seller is now reducing the price to be more in aligned with the market. In 2008, there were too many homes for sale due to predatory lending practices that caused prices to dramatically fall. 

Lenders tightened up their requirements

Prior to the housing crash of 2008, it was much easier to get qualified for a loan. Lending standards were lowered making it easy for anyone to get a loan for a home Today things are different and buyers will have much higher standards before being able to qualify for a loan.

Foreclosures are much lower 

Another huge difference between now and 2008 is the number of foreclosures. Buyers today are more qualified and less likely to default on their loans than buyers back then. Also today, homeowners have equity in their homes that gives them more options for selling than going into foreclosure. The total average equity per homeowner has now reached almost $300,000. With this kind of equity, homeowners no longer need to go into foreclosure if they are unable to make their payments. They can simply just sell if they need to get out of the home. 

Interest rates from a historical perspective

One of the things that I tell my clients is that interest rates change all the time. Always have and always will. So when shopping for your home, it’s more important to pay more attention to your monthly mortgage payment and any programs that may be applicable to you.  For some perspective, interest rates were 16.63% in 1983, 9.25% in 1991, 6.97% in 2001 and 4.45% in 2011.  

So what is a 2:1 Buy Down

With a 2:1 buydown loan the buyer gets upfront savings in years 1 and 2 of their loan. For example: 

• Year 1- Interest rate is 2% lower than market rate
• Year 2- Interest rate is 1% lower than market rate
• Year 3-30- Interest rate returns to market rate

The savings for the first 2 years comes in the form of a seller concession which is put into an escrow account to contribute to the lower monthly payment for years 1 & 2. If rates go down within the first 2 years, buyers are able to refinance to the lower rate and the remaining balance in their escrow account goes towards their principal balance. So no money is lost! 

This program is a great option for buyers looking to capitalize in this market where there is less competition and no longer the need to bid over asking to win the home. If this loan program is something you are interested in learning more about, just send me an email at dee@deesellsdfw.com. If this is something you think a friend or family member should know please feel free to forward this email to them.

As always, your partner in real estate. 

Source: www.keepingcurrentmatters.com