Austin home buyers and sellers are getting creative to lessen the blow of rising interest rates. Realtors report more people are exploring temporary interest rate buydowns.
The temporary rate buydowns happening right now involve sellers taking some of their profit from the sale and putting it toward helping the buyer make payments at a lower interest rate. It's usually a benefit that sellers only agree to for a couple of years, but it is helping homes sell while rates are high.
For the first time in years the Austin Board of Realtors says the area housing market is stabilizing—something that will help some buyers get back in the game.
"They can be a little bit more relaxed. They can actually have a shot at making one of their offers stick. They're not competing with 40 other people, so this is the first time in two years that I've seen a little bit of a window open for buyers to jump through," says Cord Shiflet, president of the Austin Board of Realtors.
However, those buyers also face rising interest rates which make payments higher and homes more costly over the life of the loan.
"People were expecting 3 percent rates to last forever and that's not a thing," says Melanie Taliaferro, branch manager and loan officer at Fairway Independent Mortgage. She explains, a temporary interest rate buydown is when the seller helps lower the interest rate for the buyer by paying the difference for an agreed upon number of years—most often two years.
"We do that by the seller funding the difference in those interest payments for those first two years. They're held in an in an escrow account and basically supplement the borrower's monthly payment," Taliaferro says.
After the first couple years (or agreed upon length and terms of the buydown) the interest rate will go back up but buyers have more time to save or explore refinancing.
"It can help people ease into that higher payment that they'll have once the buydown is complete," Taliaferro says.
She adds, some sellers may opt to buydown an interest rate instead of making a price cut on their listing. While either option could net a seller the same profit after closing, the buydown makes the listing stand out by initially saving the buyer more each month.
"[For] a buyer if you reduce the price of the home $10,000 or something that's going to save them about $40 per month maybe, but if you give them $10,000 toward their rate buydown and that can lower their payment say $500 for year one and $250 for year-- two that's a huge benefit," Taliaferro explains as an example. She adds, temporary interest rate buydowns is not a new tool but it is one that –until now-- hadn't been used much in the last 10-15 years.
"It's just one other carrot that a seller can dangle in front to make their house look a little bit more attractive," says Shiflet.
If you're interested in a temporary interest rate buydown you'll want to bring it up sooner rather than later with your realtor and talk it over with an experienced and trusted lender. For sellers, a buydown isn't always feasible but experts say when you crunch the numbers it usually benefits both parties involved in the purchase/sale.
"If you're fortunate enough to find a seller who will front the cash to do that, it'll make their house stand out. For a buyer there's no downside at all. They're looking at a cheaper loan and less payments over the years," he adds.
Another type of buydown is a permanent rate buydown. Permanent buydowns are typically funded in full by the buyer who wishes to lock in a lower interest rate for the entirety of the loan.
Source: CBS Austin
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