All right, all right, all right. Matt the Mortgage Guy. In today's video,
I'm going to talk rate buy down strategy. If you're in the market to buy a house,
whether it's a primary residence or an investment property,
and you continue to see home prices go up and rates go up, and you think to yourself,
that's not a payment I can afford or that's not a payment
that fits into my budget. Stay tuned. I'm going to show you how to save hundreds
of dollars on your monthly mortgage payment
with no extra cost out of your pocket. Alright. Matt the Mortgage Guy. In today's video. I'm
going to go over rate buy down strategy. You may or may not have heard of it. I remember it gaining some popularity
in late 2018 and rates had gone up. Folks were finding ways,
you know, in an affordability crunch to lower their monthly mortgage payment
in a rising interest rate environment.
So in 2022, this strategy
is making a comeback. I think it will be especially effective
in an environment where sellers have less and less leverage,
are more apt to give concessions. And in this case,
that concession from the seller will make your monthly payment cheaper
with no extra cost to you. Okay. So as always, I try to make it simple. I think with examples of real life numbers,
it makes it easier to understand. Know that you can always reach out
to me and my team. We're more than happy to help get you
pre-approved, show you some scenarios.
Kind of coach you on this program. Talk to your realtor
about how to do a rate buy down strategy. So go to greatmortgagebroker.com. Fill out the form connect with us there. If you would like to discuss this further
or get pre-approved with us, have us connect with your realtor
and talk with them about it. So real simple. And again,
this isn't an offer to lend. This is just me showing you
random scenarios. So don't take this and say, Hey,
you offered me this or this rate. NMLS number 1088993. All that good stuff with disclaimers,
but just based on a primary residence purchase with 5% down,
I'll put this up on the screen. You might be getting a rate somewhere
in the neighborhood of 5.875 as your primary residence, $500,000 purchase, 5% down,
so you've got a loan of 475,000.
Principal interest taxes, insurance. These numbers are based on
California taxes. Taxes might be different
whatever part of the country you live in, but the payment is 3489 a month, and that's inclusive of everything
taxes, insurance and mortgage insurance. Now, you might be in a position
where rents in your area are $3,000 and you're saying, listen,
you know, I'd love to buy a house. I've got the down payment.
I can afford it. You know, 3500 is stretching my budget. I don't know if I want to do that. How do I get this payment down? Well, a real simple strategy. The rate buy down
strategy is just basically paying points to buy the rate down
where I think the strategy becomes really, you know, easy to execute in 2022, let's say you've got a seller
who put their home on the market and they haven't
got any action for two weeks.
All you have to do is have your agent
write the offer for 500,000 seller credit of $9500, which just so happens
to be 2% of your loan amount. That'll be important.
We'll get to that later. $9500 seller credit. Now, when you go to buy the house, you don't spend
any extra money out of pocket. But that $9500 in seller's credit
can buy the rate down by two points. What does that get
you exactly? Here's the example. You go from 5.875
to 5.125 on interest rate. Now our taxes, insurance,
mortgage insurance and principal and interest
total payment all in is 3266. You save $223 a month. Nothing else in the loan changes. The $9500 in points it gets charged to
you actually gets offset by that credit from the seller, hence
saving you $223 a month. Some might add well,
why don't you just lower the purchase price by $9500 because the seller's
going to net $9500 less.
I can tell you what happens in that scenario,
and I'll plug these numbers in real quick. If you got the house for 490,500 but kept that rate at 5.875,
your payment would still be 3423. You wouldn't get the monthly
payment savings. And you know and I know that monthly
payment is important to folks. That's how you figure out your budget. So that's that. Rate buy down strategy
on a primary residence. I'm going to real quickly
go over the same exact scenario where you might be buying
an investment property. And investment properties
similar to primary residence, you're going to find,
especially through the second half of 2022 and through 2023, sellers in a position to negotiate more. Demand is down. We all know that. Some stat I just saw where there's 18 million home buyers that priced out
and could no longer afford to buy. This actually might help some of them afford to buy the thought
they were priced out. But those who aren't priced out,
this is a good strategy nonetheless.
Let's say that you're
looking at a home for 500,000 and on an investment property purchase
you're putting 25% down. So you have a loan amount of 375,000. Well, with an interest rate of 6.625. Principal tax. Principal interest,
taxes, insurance. All in payment. $3,005. If you're a savvy investor,
you've already done all your research. You know what this place is
going to rent for, how much vacancy you can expect for,
what capital expenditures might be and all that good stuff. Right. So you plug this in and you say,
listen, $3,000 isn't going to cut it. It's going to be a break even property. I'm not going to buy it
if it's a break even. I need two or $300 a month
in cash flow for this to make sense, for me to come out of pocket
for the 25% down payment. Okay. Well, maybe this property
has been on the market for 27 days and you know that you can negotiate
with the seller.
You go to the seller
and you offer that same $500,000, but with $11,250 in seller credit. That just so happens
that 11250 is 3% of your loan amount, not of the purchase price,
which they can give a credit up to 3% of the purchase price. But for this scenario
and for this example, I'm just using 3% of the loan amount. You offer and you get accepted. This 11250 in credit. You can buy your rate down
all the way from 6.625 on this investment property to 5.375. Lowers your all in payment, taxes,
insurance, principal and interest to 2704. So what you've done
by getting 11250 in credit from the seller and it's just part of the contract seller
to credit the buyer this much and then you apply
that towards your rate buy down.
Is you've lowered your payment by $301. The new payment is 2704. So in an environment where you can actually get sellers
to concede, to give a credit, you structured an offer like this,
they haven't got any offers at 500,000. So rather than come in at 485 or 490 and
see if you can get something accepted, you say, listen, I'll give you your 500,000,
but I need 11250 in seller credit. That's how you structure the offer
when you get it accepted. If you choose to use that seller credit to buy your rate down, here's
what you can do. In this example you buy it down
quite significantly to 5.375. In a primary purchase the examples we used you went from 5.875 to 5.125,
and you lower that payment by $230.
If you've got bigger loan amounts,
you can ask for bigger credit and you're going to get a bigger monthly
payment savings. If you've got lower loan amounts then maybe the monthly savings
isn't as dramatic. Right. But nonetheless, it works the same
no matter the loan amount, no matter if it's primary investment,
no matter what market you're in. This is a strategy
you can employ. Any questions at all? Please feel free to reach out again.
Greatmortgagebroker.com. Fill out the form. Let us know where
you're at, how we can help. I'll try to make this Excel spreadsheet
available for folks who want to see it,
but it's rather simple, right? You're getting a seller credit to cover
the cost to buy down the interest rate. That's essentially what it is.
Hopefully this was helpful. Thanks for watching. Appreciate you. Smash
the like button, share this video. Do all the things
and until next time, we gone see..
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