Blog Layout

Buy Downs.

The rapid rise in mortgage rates during 2022 coupled with continued appreciation of home prices have limited the number of buyers in the market which is reflected by the lower number of home sales currently.  "It's a fact that many households are impacted by higher mortgage rates as they no longer earn the qualifying income for the median-priced home." Nadia Evangelou, NAR Economist


One of the things that agents are doing to help buyers lower their house payments is to suggest an adjustable-rate mortgage.  The rates on these types of loans are tied to indexes that reflect the current market rates and produce less risk for the lender.  The payments adjust on the anniversary date based on the index plus margin named in the note.


While many people think that they only adjust upward, they also adjust downward when the index indicates it.  For the week of September 29, 2022, the Freddie Mac 5/1 ARM was 5.03% compared to the 30-year fixed-rate of 6.70%.


Another tool that experienced agents are using to address affordability issues are interest rate buydowns.  In recent years, there have not been many buydowns used because interest rates were already very low, but now, more people are considering them again.


A buydown is prepaying the interest on a mortgage at the time of closing to lower the payment for a specific period or for the term of the mortgage.  Obviously, it would be more expensive to buydown the rate for the whole term of the mortgage.


Either the seller or the buyer can buydown the rate and it would be specified in the sales contract.  From a practical perspective, sellers in the recent past haven't had to consider this option because of the high demand and multiple offers that were commonplace.  Now that sales have slowed, and both inventory and market time is increasing, some sellers want to make their homes more marketable and are seeking a competitive advantage.


A common temporary buydown is called a 2/1 which reduces the payment in the first two years of the loan by calculating the borrower's payment at 2% less than the note rate for the first year and 1% less than the note rate for the second year.  Years three through thirty, the payment would be the normal payment at the note rate.


A buydown is a fixed rate, conforming mortgage that the borrower must qualify at the note rate to indicate that borrowers will be able to afford the mortgage after the first two years of lower payments.


As an example, on a $4000,000 sales price with a 90% mortgage at 5.54% interest for 30-years, the normal principal and interest payment would be $2,053.08.  By using a 2/1 buydown, the payment for the first year would be at 3.54% interest, 2% lower than the note rate, making the payment $1,624.61.  The second year, it would be at 4.54% interest, 1% lower than the note rate, making the payment $1,823.63.


The buyers' payment would be $428.47 lower each month for the first year and $220.45 a month lower for the second year.  The total savings would be $7,787.04 which becomes the cost of the 2/1 buydown.  This amount must be paid at the time of closing by either the seller or the buyer.

 

2/1 Buydown Example              1st Year  2nd Year     3rd ... 30th Years

Interest Rate                                    4.7%         5.7%           6.7%

Principal & Interest Payment    $1,867.10    $2,089.44   $2,323.00

Monthly Savings                            $455.90        $233.56

Annual Savings/Total Savings $5,470.80     $2,802.72   $,8,273.52



The most prevalent providers of buydowns in the past have been builders.  It is a concession like paying closing costs or upgrades for the buyer.  As sales have started to slow, some builders in particular price ranges and areas are currently considering this benefit to close more sales.


To summarize: a buydown is a fixed-rate mortgage where the interest is pre-paid for a period to help the borrower with lower payments for a time.  A 2/1 buydown allows the buyer to have significantly lower payments in the first two years which will give them time to settle into the house while they can be confident of what the payment will be in years three through thirty.


The pre-paid interest is deductible for the buyer, even if the seller pays for it.  This is something that the buyer will want to talk about with their tax advisor when they are doing their income tax for that year.


If you are selling a home, talk to your listing agent about this option to increase marketability.  If you are a buyer, discuss this as an affordability option.  If your agent isn't familiar with buydowns, ask them to research it with a trusted mortgage officer.  Buydowns are legal and have been available for decades.  The determining factor may be whether the market has softened enough that sellers are willing to consider them.

Consumer Guide: Buying Your First Home

By Chuck • November 6, 2024
Consumer Guide: Buying Your First Home

What Can A Realtor Do for You.

By chuck • May 10, 2024
This is a subtitle for your new post

Chucks Realty Times Newsletter

January 23, 2023
Chucks January 2023 Newsletter 

New 3/3 Cabin

By chuck • January 23, 2023
New 3/3 Private Cabin on Creek for Sale.

Finding Funds for a Down Payment

By chuck • October 24, 2022
A Soft Second

MARKET ACTIVITY REPORT Young Harris, GA 30582

By chuck • September 28, 2022
Young Harris Market Activity Report.

Newsletter August 2022

By chuck • August 15, 2022
Chuck's August Real Estate Newsletter.

Moving Down in an Up Market

By chuck • July 31, 2022
Moving Down in an Up Market

How to Prevent (Home) Buyer’s Remorse

By duda • May 31, 2022
By: Lynn Ettinger You can make a successful offer on a home even in a competitive market — with the right information and help. When you’re house hunting, the pressure of competition can move you from “Hmm, I like that, but it’s too pricey,” to “I have to have that!” You think, so what if paying for this house will put me way over budget? I can cut back somewhere else, right? But that kind of thinking can get you into trouble. Trouble that’s totally avoidable. Whether you’re in the middle of a home bidding war or facing down a list of must-haves, don’t lose sight of your budget and the risks. That way, you can own a house without home buyer’s remorse. And you’ll have money left to enjoy things like new furniture, entertainment, and just plain having fun. Who Has Home Buyer’s Remorse and Why? A competitive real estate market can set buyers up to purchase a home that’s either beyond their budgets —sometimes hugely beyond — or doesn’t meet their needs, according to a 2021 survey by Bankrate and YouGov. The survey found that recent home buyers, including 64% of millennials, had regrets about their home purchase. The top reason? They were unprepared for maintenance and other home ownership-related costs. On top of that, 13% percent of millennials said they think they paid a higher sales price than they should have. “Things in homes always break down, so people should put aside a budget for anything that will need fixing,” says Lawrence Yun, chief economist at the National Association of REALTORS®. “A rule of thumb is to anticipate 1% or 2% of the home price for potential maintenance,” he explains. “So, for a $300,000 home, that means setting aside $3,000.” One reason home buyers may be tempted to go over budget is they’ve been influenced by the beautiful homes on TV, according to an NAR report on home staging. “The shows can create unrealistic expectations for the home buying process and how homes should look,” says Brandi Snowden, NAR director of member and consumer survey research. In time, buyers can view features that used to be luxuries as necessities. They believe everyone has them and they should too. One solution: Work with a REALTOR as early as possible in the process. “Make sure your agent knows your budget, so they can help you set expectations and stick to them,” she advises. How to Navigate House Hunting in a Competitive Market In addition to pressure to exceed their budgets, buyers are facing hurdles like these five: 1. Requests to Waive Contingencies Tamara Suminski, a real estate agent at Beach Real Estate Group in Manhattan Beach, Calif., is seeing not only bidding wars but also sellers wanting buyers to waive contingencies. “With an appraisal contingency, if the appraisal comes in low, the buyer has choices. They can choose to try to renegotiate with the seller, bring in the difference, or cancel. When they remove that contingency and its protection, and if the home doesn’t appraise at the right level, the seller is not very likely to renegotiate with them. And the buyer has waived their right to cancel. If they cancel anyway, they’re risking their deposit.” Some buyers are also waiving contingencies related to home inspections. These investigations are an opportunity to have a home inspector view the home based on disclosures and for the buyer to use findings as a bargaining tool, Suminski says. Eliminating these protections can end up costing money for buyers. And the more offers the buyer writes and loses, the more risk they will tolerate. So, they may waive contingencies and regret it later, says Suminski. Talk to a buyer’s agent who will guide you through this and explain the risks of removing protections and unknown variables, she advises. 2. Speed Showings and Decisions Bryan Yap recently bought a home in an expensive and highly competitive market — Orange County, Calif. He found that with the pandemic, each showing lasted only 15 minutes. That was one of the biggest hurdles. “We’d see three, four, or five homes in one day. It’s hard to keep track of what you like and don’t like with each house. What I would do differently is take notes immediately after viewing a home. If you’re able to prepare beforehand, create a list of wants and requirements in priority order. Immediately after seeing each home, rank it based on the list.” 3. Focusing on the Top of Your Price Range “If you’re looking in a micromarket where listings are achieving multiple offers and homes are going above asking price, don’t set your on the houses at the top of your price range,” Suminski says. If $300,000 is your upper limit, look at houses priced at $250,000 or $275,000. Otherwise, you’re going to be outbid from the gate every time.” That was the process Yap used when he was looking. “I would look for homes $25,000 under my max budget. I went on Zillow and looked at homes that were sold recently and tried to calculate the average over-listing price those homes were being sold for and factor that into my offer price.” 4. The Need to Compromise Yap’s must-haves were three bedrooms, two baths, and being closer to the city center of Anaheim. “I was able to get three beds, two baths, but I did have to compromise on location. I also had to compromise on price, which was doable because I could still afford it. To compete with all the potential buyers, I knew that we had to either offer an over-list price or remove some contingencies.” Suminski advises adjusting your search outward geographically, even if it means a longer commute. Buyers might also have to compromise on property types and features. In addition, they should consider doing some DIY projects instead of wanting everything to be move-in ready. “They may have to be willing to look at townhouses instead of single-family homes or install carpet and paint on weekends.” 5. Information Overload In the two years before he started searching for a home, Yap did a lot of reading. “It was a massive plan I had to come up with and stick to so that I’d be able to afford buying a home.” Because of how hot the Orange County market is, agents scheduled showings as soon as a house was listed or showed “coming soon” status. Yap treated the home search as “almost a second job,” using lunch breaks and evenings to check emails, do online searches, and text his real estate agent about what he wanted to see. “I had to make a lot of sacrifices. People wanted to set plans with me for the weekend, but I said, ‘Sorry, I have to go view homes that day.’” He primarily credits his real estate agents, including Sumiski, for keeping him informed. “They made all this possible. I learned a lot from them.” Some agents, like Suminski, hold an accredited buyer’s representative designation but usually work with sellers as well as buyers. “An [agent with an] ABR has taken extensive buyer’s representation training,” Suminski says. “They’ll provide education to buyers so that they’re learning as much as they can about the market, including the risks involved with different negotiations. If buyers are going to shorten terms or remove protections, they need to be well informed about the pitfalls.” Learn from Experiences That access to information and guidance will help buyers making an offer on a home especially in a competitive market. “Today’s buyer has seen and written offers on many properties before they get their offer accepted,” Suminski says. “That’s common across the country. Each is a learning opportunity for buyers about what information they might need to be researching so they can move more quickly.” When you act on advice from recent buyers and agents, you can stay well informed and get good results even in a tough market. And that’s the best way to prevent home buyer’s remorse.

7 Easy DIY Home Projects That’ll Make You Say, “Yes I Can!”

By duda • May 31, 2022
By: Leanne Potts Beautiful you-can-do-it inspirations for easy DIY projects. As anybody who’s been inspired by HGTV can tell you, DIY home projects on TV look amaaaazing. But DIY renovations in real life: kiiiinda the toughest thing ever. And, yet, these rookie craftsmen did beautiful, jaw-dropping work that will totally inspire you. Check out these easy DIY projects for your home: #1 Pinterest-Worthy DIY Window Seat An empty recess in a room is a ripe spot for a DIY project, as home improvement blogger Britt Kingery can tell you. She and her husband, Justin, built a window seat so ridiculously Pinterest-worthy you’ll want to make one for yourself (like, right now). It’s a roomy 10-foot beauty, so you can seat a houseful of guests without dragging chairs all over the place. And (bonus!) there’s storage underneath for stashing lots of stuff out of sight. You can custom-create your own for about $250 if you’ve got a few essential DIY tools. Or you can do an Ikea hack to get the same result. Just attach one of their long, horizontal storage systems to your walls. Then add cushions and preformed molding for the same custom look. The big reveal doesn’t happen overnight, and a renovation almost always looks worse before it looks better. Britt Kingery, home improvement blogger #2 Miracle Makeover With Just Paint, Stain (and Patience) “The Brady Bunch”-orange wall and abused floors in the before photo are homely enough to strike you blind. But what a miracle paint, sanding, and stain can do! Lighter shades on the walls, trim, and floor reflect natural light, making the space so much brighter. And for very little money (about $150). The key to such an amazing transformation, Kingery says, is to be a tortoise, not a hare. Sanding, taping, patching holes, and waiting on stain, paint or polyurethane to dry takes care and patience if you want professional-looking results. “The big reveal doesn’t happen overnight, and a renovation almost always looks worse before it looks better.” #3 Instant Open Floor Plan Cramped, dark kitchens are so very 1981. Sarah Lemp of the “All Things With Purpose” blog turned her dated kitchen into an open, light-filled space that feels and functions like a larger room. The cost? $300. Yep. For less than the cost of a set of countertop canisters at Williams Sonoma, Lemp worked magic. The biggest fix? She just removed a set of overhead cabinets that blocked light and the view into the dining area, making an instant open floor plan. Then she turned to paint, the budget remodeler’s friend. She used a soft griege (designer-speak for grayish beige) for the walls of the kitchen and dining area. She painted the remaining upper cabinets white, and the bottom ones dark gray. “I love the look of white cabinets, but figured a darker color was more kid-friendly,” she says. Lemp skipped the requisite subway tile backsplash and went with peel-and-stick shiplap instead. “It was easier and cheaper,” she says. #4 Brighter Bedroom With Paint and Wood This may be an ugly room, but we’re not sure because it’s so dark all we can see are cheap blinds and a poofy valance that hasn’t been fashionable since the Olsen twins were toddlers. It needed major help. Ashley Rose and Jared Smith of the blog “Sugar and Cloth” pulled off a weekend makeover by painting the walls a lighter color and replacing the window treatments with wispy, white drapes that practically pull sunlight into the room. A pair of wall-mounted reading lamps added a second layer of light, because a lonely overhead fixture can’t light the whole room all by itself. And that wall behind the bed? It’s strips of reclaimed wood with an adhesive backing. Peel, stick, and you’re done. No nails. No glue. And just one tool: a level to make sure you stick the wood strips in a straight line. Awesome. #5 An Easy-Peasy Backyard Patio Dirt’s ugly. It’s also a pain, turning into mud when it rains, dust when it doesn’t, and sneaking into your house on the feet of dogs and kids. Covering it with a paver patio is a great fix. Chelsea Foy of the blog “Lovely Indeed” built this one in a neglected flower bed in just 10 hours. She used patio stones molded to look like several individual bricks, because leveling one large stone is tons easier than leveling a bunch of bricks. Those arcs of large river rocks just off the patio make a natural-looking transition between the factory-perfect pavers and the rest of the yard. They’ll also give you less lawn to mow or flowers to tend. #6 Fancy Wall Molding for a Bargain Price Wall molding makes a room look so custom, so finished, so much better than boring old drywall. But it costs around $25 a square foot just for the materials. Mysha Barton of the blog “Remington Avenue” pulled it off along her stairs for just $30 — total. The secret? She used MDF (medium density fiberboard, aka fake wood) to keep it cheap, and didn’t mount it in the traditional way with board panels on the wall. Instead, she put thinner “chair rail molding” directly on the wall, and painted everything white, including the wall to get that rich look of molding. The toughest part was cutting all those angles, Barton says. She got it done with a miter box and a handsaw. “My advice is to use scrap wood to practice your angled cuts before taking on your expensive molding pieces.” Barton did this project in just eight hours with three small children in the house, so even if 10th-grade geometry made you cry, you can do this. #7 A Space-Saving Workbench A DIY workbench is a gateway project, one that can lead you to harder projects and possibly, a home improvement addiction. Make this workbench your very first project and you’ll have room to do scads of projects — money-saving ones. It’ll fit in a small space because it’s actually a door mounted on door hinges, so you can fold it flat against the wall when you’re not using it. Be sure to buy a solid wood door, not a hollow one, so it’s sturdy enough to stand up to years of projects.
More Posts
Share by: