How to Get the Seller to Buy Down your Interest Rate when Buying
Have you decided to to stay on the sidelines in the current market because of high interest rates? Are you afraid of the high payments making you house poor? Well you’re in the right place! Today we’re discussing how buyers can get a lower interest rate for free, what a buy down is, and what it means for your bottom line.
What is an Interest Rate Buy Down
An Interest Rate Buy Down is pretty simple. You’ve probably never heard of this before because we’ve had such low rates for such a long time that it wasn’t worth it. However, in today’s real estate market, a buy down is almost a necessity! For every loan type, you can “buy points” that assist you in lowering your interest rate. Each loan is specific regarding how many points can be purchased.
Who Can Pay for a Buy Down
You may be wondering who can pay for a buy down? Further, how do I get my interest rate down for free like the photo shows? Buyers can get lower interest rates by buying points themselves. This has always been the case. It is a benefit vs cost analysis and differs with every specific situation. It also changes on a daily basis! My preferred lender, Jacek Gillispie at Summit Funding in Centralia, WA tried to explain it to me in a simple way. Essentially, you will need to discuss this with your lender the day you decide to lock your rates.
The good news is that a seller can also pay down your interest rate, which costs you nothing! Again, it will vary by loan type how many points can be purchased. In general, the amount of points that can be purchased is anywhere from 2-6 points. The key is to make sure this is negotiated in the offer. Discuss this with your agent to determine an appropriate ask. If your realtor is not sure what you’re talking about, make sure you find a new one!
I just recently negotiated $30,000 off list price with an additional $13,000 of seller paying down buyer’s interest. Seller’s are willing to do this because they’re uncertain about the market. Further, they don’t have knowledgeable realtors guiding them that’s it’s still a seller’s market! Buyers, you need to take advantage of this!
How Much Can You Save with A Free Rate Reduction
So, how much can you actually save with an interest rate buy down? That’s a really good question that you’ll need to discuss with your lender. One of the key takeaways for you to remember is that the cost of a point is about 1% of the loan amount. Another key takeaway is that a point DOES NOT lower 1% from your interest rate. Let’s say that you’re able to lower your interest rate by half a percent – you will save nearly $60,000 of interest on a $500,000 loan. That same scenario, you could reduce your monthly payment by $170 OR your loan approval would go up $25,000 to $525,000.
If you’re on the edge of your approval limits, this will help you clear some space and save you money in the short term and long run. While you may need a more in-depth conversation with your lender about purchasing points yourself, its a no brainer to get the seller to pay as much as possible for you!
If you’re thinking of buying or selling your home in the west Lewis County area, contact me today! I’d love to hear from you! Eren Millam – Managing Broker Premiere Property Group, LLC WA License No. 26933
Chehalis, WA 98532 | Centralia, WA 98531 | Adna, WA | Napavine, WA | Onalaska, WA 98570 | Rochester, WA 98579 | Vader, WA 98593 | Winlock, WA 98596 | Boistfort, WA
Call/Text: (360) 219-3616 | Email: Eren@LewisCountyHomes.com
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