The market is changing…I think we all know that! It doesn’t mean that values have come down significantly, it just means that homes are sitting on the market longer than they were in the past 2 years. It doesn’t mean the housing market is crashing. It doesn’t mean that there are no options for sellers & buyers because interest rates are higher.
Yes, buyers have to be very mindful of the interest rates. They also have to be mindful of what they can afford, without becoming house-poor. A change in the market may be needed. If only we had a crystal ball to predict what would happen next, right? So it’s not doomsday if you have a house you need to sell. Our office has sat down many to look at what we can do to help buyers and sellers during these times and how we will help them understand that listing can still be beneficial to them and buyers. We teamed up with a local lender, Melissa Stone from Movement Mortgage, to break down some options sellers might have to entice buyers to purchase their homes. Let’s dive into it:
Rising mortgage rates can make it more costly to own a home. This isn’t the best news for homebuyers. In fact, a 1% rate increase can cost an additional $100 to $200 each month, reducing purchasing power for many borrowers. Rate increases don’t only affect buyers, decreased affordability can mean fewer showings and offers for sellers.
Some sellers respond by reducing their home’s asking price. Yet, they might get more bang for their buck with a rate buydown.
Each discount point is 1% of the loan amount, and each point reduces the rate by approximately .25%. So, if a buyer purchases two discount points on a $200,000 loan, they’ll pay an extra $4,000 in fees at closing to reduce their rate by approximately .50%.
But while rate buydowns are common, this expense doesn’t always fall on the buyer. Sellers can buy down a buyer’s rate as a seller concession. They’ll set aside a portion of their profit to cover this expense. Conventional financing allows for a total of 3% in concessions, and Government financing allows for up to 6%.
Buydowns provide homebuyers with immediate and long-term benefits. They can take advantage of a lower mortgage rate without spending more out-of-pocket, saving thousands of dollars.
The ability to secure a lower mortgage rate also increases affordability and reduces their monthly mortgage. In addition, they’ll pay less interest over the life of the loan.
Homebuyers aren’t the only ones who benefit from seller-paid points. It might appear that sellers get the short end of the stick, but that’s not the case.
When housing demand decreases in response to rising interest rates, it takes longer for some homes to sell. To speed up a sale, some sellers consider a price reduction strategy. They might lower their asking price. However, this strategy also reduces their profit considerably.
A rate buydown, on the other hand, is often a cost-effective alternative. This strategy also reduces a seller’s profit. But they often lose less money compared to lowering the price.
It’s a win-win for both parties. The buyer gets a mortgage they can afford, and the seller doesn’t lose too much of their profit.
Melissa Stone from Movement Mortgage
