How a Mortgage Rate “Buydown” Can Help you Sell in a Slow Market

I've discussed this before, but I wanted to mention this technique again. If you do not work with a lender who understands this, I suggest you find one ASAP. It can get those buyers looking for a deal to focus on the monthly payment rather than the loan amount.

A technique used in the 1980s during a slow housing market is emerging again by lenders who are trying to help move some of the unsold houses glutting local markets. This technique is called a mortgage rate “buydown.” Rather than lowering the asking price of a house, a seller offers a discount rate package that lowers the buyer’s effective interest costs and monthly payments during the first few years of the loan.

The most popular form of a buydown in the ’80s was a “3-2-1” on a fixed rate 20 year mortgage. In this instance, the seller agrees to pay 3 percentage points of the interest rate during the first year, then 2 percent during the second and 1 percent in year three. After that, the buyer pays the full rate.

If you had a house for sale at $210,000, for example, would save more money by offering the buydown rather than discounting the house price by $10,000. Over the course of 3 years, you would pay about $9000 and you would be getting the full asking price upfront. This is also a win for the real estate agent who will have a slightly higher commission. The buyer, who will not likely be enticed by a $10,000 discount on the asking price, would likely be more interested in saving on their monthly payments during the first few years.

In the current housing market, offering this type of mortgage rate buydown just might help you get your house sold at the price you want.