Click to Enlarge: Equity growth for 2019 is projected to be 3%-5% by Fannie Mae, Freddie Mac, and the National Association of Realtors.

How a seller credit for permanent rate buy-down can be more effective than a price cut.

By Danny Ponder | NMLS 230269

Whew! 2018 has flown by and with it a lot of changes in our housing markets. Limited inventory, increased prices and equity, rising interest rates, and buyer fatigue??? Yes, buyer fatigue is a real thing. We saw bidding wars with offers waiving appraisal contingencies, accepted offers going over list price, and 1st time homebuyers getting squeezed out in a fast paced market. Now, buyers who are playing the waiting game could be sitting out on one of the best times to get into the market. I have heard many buyers say, “We are going to wait for spring of 2019.” That could be a missed opportunity for many as equity growth for 2019 is projected to be 3%-5% by Fannie Mae, Freddie Mac, and the National Association of Realtors. New home builders are catching up with demand and creating more inventory all the while interest rates are creeping up. Location, location, location is the real estate mantra but timing is everything!

Listed homes for sale are starting to see more days on market which could be a seasonal adjustment but we won’t know until we work through this cycle and review the sales data. In some instances sellers are concerned and entertaining price drops to attract buyers. How do you make a listed home more attractive in this market with competitive active listings? The answer is to make it more affordable for the buyer—a mutually agreed upon solution by seller and buyer can make a sale happen! This is sounding like a somewhat normalized market as price and terms are equally negotiated by both parties. As housing affordability tests the markets and buyer confidence, financing becomes the solution for creating successful sales. A permanent rate buy-down is effective strategy where funds are used to reduce the interest rate.


If a seller is considering a price drop of $12,000 to attract attention and the home is listed for $400,000, the buyer benefit would be a lower price and the loan payment for this buyer would be 3% less than the original list price. If the seller was to credit the buyer $12,000, we can make the payment more affordable for the buyer than the price cut with the structure of financing. Where we can most effectively apply these funds would improve the affordability for the buyer is with a permanent rate buy-down. In this case, the principal and interest payment decreases over 8% for the buyer. Not to mention, this can also assist buyers who may have been affected by the recent interest rate increases for loan qualification. A 3% seller credit can also translate into roughly $32,000 increase in purchase price affordability for a buyer for this scenario.


In this exercise, the borrower is putting 20% down. The seller contribution does not have to be 3% and only used as an example. There are limits of allowable seller contributions based upon loan type, loan to value and purchase prices. Consult your knowledgeable and experienced lender on how best to use the seller contribution strategy to use the dollars for the maximum benefits for buyers and sellers. If seller credits exceed the allowable amount, the excess funds cannot be used in the transaction.

Working together with all parties in the transaction is now more important than ever. Rely on your trusted real estate advisor Michael Glascock on how best to strategize and effectively list or buy in this ever changing market. I am here to help make the financing more affordable with long lasting benefits to buyers for a successful close.

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