Welcome back to the ABCs of Buydowns! Last week we tackled the basic definitions of what a buydown is, the available types and how they work to lower monthly payments. Today we will dig a little deeper to understand the pros and cons of each and how market conditions can determine which option might best suit your clients’ needs.

I think it’s safe to say that it’s a trying time in the real estate market. Buying low and selling high is a grand idea but not very likely, and your client’s missing the opportunity to get into their dream home will almost always be a greater loss than the savings they gain by waiting.

Interest rates are not much different — everyone wants to wait for them to hit their lowest point so they can achieve the lowest payment or purchase a more valuable home. So while utilizing a buydown isn’t going to be the magic wand that gets the buyer the lowest rate, it can be used to help achieve the closest thing to that.

So, which one should your clients use — temporary or permanent? That can be answered by looking at where we are in the rate cycle and how much money the seller has to work with. Let’s take a look at each:

1. Where are we in the rate cycle?

As we were coming off the lows of 2021/2022 and rates were starting to inch higher, a permanent buydown offering a lower rate for the life of the loan probably made more sense. If rates are rising why not lock into something that will probably look pretty good 12-24 months later?  However, if, like now, rates are retreating from the highs and have the potential to go lower, then a temporary buydown might be the answer. It’s a much less cash-intensive way of reducing the payment for some time.

2. How much cash is the seller willing to utilize?

Since a temporary buydown must be paid by the seller and a permanent buydown can be seller or buyer-funded, how much and where the funds are coming from matter. Because a temporary buydown is just that — temporary — you can get a significantly lower payment for a shorter period with less upfront costs. But if the buyer and seller want to contribute to the buydown then a permanent one may be the best option.

If this seems like a lot, we don’t expect you to be the expert. What you can do is introduce your client to the expert and demonstrate the value you bring to the table with your relationships with Key Mortgage loan officers. Our sole job is to make you look your best as a full-service real estate expert and provide clients with exceptional consultative advice and impeccable service. Don’t have a Key Mortgage loan officer to partner with? Easy Fix! Just reach out to one of our loan officers today.