3% Mortgage Interest Rates are BACK!!! 2/1 Mortgage Interest Rates Buy Down EXPLAINED

Do you feel like you missed the boat? The days of casual 3% interest rates on primary mortgages seems long gone. Now, with interest rates in the high 5%’s homes are suddenly much less affordable. Well, before you get too discouraged, I want to explain a loan product we are using to get clients under contract with 3% interest rates!

Were you thinking about moving right here to houston texas but your search has been put on hold because of interest rates well that seems to be a common theme you know when interest rates were in the high twos low threes it felt like free money everybody was able to upgrade their homes and decrease their monthly payments and so it was a win-win it really was a

Firestorm that started this crazy market growth that we’ve seen here in houston for the past two years but as prices started to climb and interest rates started to climb as well what used to be a really smart financial move has kind of become a break even for some people that are looking to move from out of state to texas and so while we sit around and we wait

For interest rates to come back there’s really only two options you can sit on the sidelines and wait which a lot of people are doing or you could do what’s called a 2-1 buy down and so in today’s video we’re going to walk you through what a 2-1 buy down is and how we have been using it to successfully get our clients under contract and still get them interest

Rates in the threes so if this interests you and you’re wanting to make that move to houston and you’re curious about how you can still get an interest rate in the threes then you’re going to want to stick around so let’s get after it right now so if this is your first time to our channel and you want to know everything there is to know about living right here

In houston texas the best way to do that is to subscribe tap the bell for notifications that way you can be the first to know about everything going on right here in houston my name is kyler ferris and our team we get calls texts emails every single day from people just like you looking to move to houston so if that’s you give us a call shoot us a text send us a

Quick email and we will help you make a smooth move right here to houston texas now we’re going to talk about 2-1 buy downs today now it’s a tricky word uh but really all that it means is that it’s a loan product being offered right now and it really is designed for what’s going on in the marketplace right now and so the best way to explain it is as interest rates

Have climbed you know people are getting priced out of the market uh a lot of people don’t care as much about sales price as they care about their monthly payment right because the monthly payment is what most people budget around and so when interest rates were in the low threes mid threes even high threes uh the market here was moving really quick and so as it

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Started to work its way up into the fours it was still moving pretty quick and then once it got into the fives it started to price some people out of the market because the monthly payments here in texas were as high as these other states that they were moving from and so it was no longer a savings it was no longer quite as smart of a financial idea to make that

Move and now obviously it’s very speculative what’s going to happen with interest rates over the next couple of years so i don’t want to make any statements saying that they are definitively going to come down but when you study the economics behind it there is good reason to believe that interest rates will start to come back down sometime in the next two years

And so what a 2-1 buy down is is essentially if the interest rates at today’s current market rates are at 5.875 which they were as of this morning when i’m making this video so if they’re at 5.875 then your monthly payment with on a 500 000 home putting 20 down which would be a 400 000 loan amount your monthly payment is going to be i wrote it down here it’s

23.36 per month now that’s just for the principal and the interest that’s not accounting for property taxes or insurance and so that 2336 might be higher than most people were wanting to spend uh if they were budgeting off of interest rates at 3.875 they’d actually only be paying 1881 dollars a month which is a lot more doable and so what these lenders have come

Up with is is it’s called a 2-1 buy down and so the buyer purchasing the home in fact we just did this with one of our clients two weeks ago and i really think it’s going to work out well for him so let’s start by saying the buyer has to be qualified for the full home at current day’s market rates so your buyer if you’re a buyer you would need to qualify off of

A 5.875 interest rate when you’re buying this 500 000 home now a lot of people that we work with they qualify for a greater monthly payment than they actually want to spend and so this is where this all kind of works out so if you start at a 5.875 interest rate um and it’s 23.31 per month then what they’re going to do is they’re actually going to have the seller

Give them a credit to buy down their interest rate for the first year and so for the first year it’s going to be two points lower so for the entire first year your interest rate’s going to go from 5.875 to 3.875 and so that changes your monthly payment from that 23.36 a month brings it all the way down to 1881 and so for 12 months your monthly payment is about 400

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Less than what it would be if you just got a 30-year fixed mortgage at 5.875 now the reason that you’re doing this is in hopes that in the next year or two interest rates come back down somewhere into the threes and then you can refinance and lock in that rate on a 30-year fixed so this is just a quick fix solution to get you a lower interest rate to get you in while

We wait for rates to come down so once again i will preface if rates don’t come down then you’re in two years your rate will get slid up to the 5.875 and you will be paying that 23.31 per month or 23.36 until rates come down and you decide to refinance now when you’re two hits this is why it’s called a 2-1 buy down so the first year the rate goes down two points

So it goes from 5.875 to 3.875 the second year it’s only one point lower and so it’ll bump up a point and so it’ll be locked in at a four point eight seven five percent interest rate and so your monthly payment will will jump from the 1881 up to 21.17 per month and then you’ll have another 12 months of that and then it’ll bump one more point up to today’s current

Market interest rates now how does this all work so the reason that this works is in these scenarios the buyer actually isn’t allowed to buy it down it’s just a rule that’s part of these types of loans and so what we’re seeing is it’s kind of a perfect storm as the market is starting to soften right now and buyers are starting to get a little bit more leverage in

Negotiating what’s more important to buyers sometimes than maybe a thousand two thousand five thousand dollars worth of repairs is to negotiate with the seller and say hey will you buy down my rate for this two one buy down now a couple months ago this wouldn’t have worked because really sellers weren’t having to negotiate with buyers but as the market softened and

Builders in new construction are starting to offer really crazy incentives if a seller wants to sell their home on the resale market they have to be a little bit more competitive and one way to be more competitive is to offer a credit to buy down somebody’s interest rate because that’s what the builders are currently doing and so uh as a seller if you’re watching

This video just know that if we were to list your home right now that might be actually one of the better ways to get it sold quickly is to offer that credit as a 2-1 buy down for prospective buyers because it goes from limiting buyers that don’t want to pay a 5.875 interest rate to bringing in buyers that do want to pay a 3.875 interest rate and so there’s one

More aspect of this loan that i think is really cool so let’s just say that interest rates start to go down here in 15 months well whatever is left from that buy down credit it doesn’t disappear let’s say that the entire buy down costs 8 800 which in this case that’s what it costs so if we were a buyer and we wanted to do a 2-1 buy down on a 500 000 home for a 400

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000 loan amount when we go and talk to the seller and negotiate they would need to give us a credit for 8 800 which in this case is actually less than 2 percent of the sales price so it is reasonable for us to negotiate that when negotiating repairs and so anything that’s left over when you go to refinance let’s say there’s still three thousand four thousand dollar

Credit left that actually goes into a principal reduction so you don’t lose that money the bank doesn’t get that money uh whenever you refinance and pay off your old loan and originate a new loan you would actually get that credit in the form of a principal reduction so this isn’t uh the perfect loan for everyone um but it does get people in the door with a lower

Monthly payment uh while we wait for those interest rates to come down now i know there’s gonna be some comments like oh these are the financial instruments that got us into the 2008 bubble and i won’t get too much into that but i will say this the difference between this type of product and the products that were being used in 2008 is in 2008 banks were offering

Financial products with substantially lower temporary interest rates like adjustable rate mortgages but the buyers weren’t qualified at the current interest rate they were being qualified at this discounted interest rate and so whenever the rates adjusted those buyers were no longer able to afford and pay for those homes in this case every buyer that uses this type of

Product has to be qualified for that 5.875 interest rate so there’s no more assumed risk for these banks to issue loans to these buyers it’s just a quick fix to getting people in with lower monthly payments so i hope this made sense to you if you have further clarification uh we highly recommend reaching out to us we’ll put you in touch with one of our preferred

Lenders and they will be able to walk you through really your financial picture to see if this is the best case for you and your family now they do offer these products for conventional loans they also offer them for fha loans and va loans so if this interests you at all and you were kind of sitting on the sidelines because you didn’t want to pay the monthly

Payments from a 5.875 interest rate this might be your best option so give us a call shoot us a text or send us a quick email that way we can help you make a smooth move right here to houston texas we’ll see you guys in the next video you

Transcribed from video
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