In short, it allows for a seller to keep their home at list price and offer to pay some of the buyer’s closing costs. For the buyer, it allows them to buy their interest rate down and allows them to qualify to purchase the seller’s home.
Realtors, before you reduce your list price, here is a strategy that can be a win-win for both buyers and sellers! Consider changing your marketing to “The seller will pay up to $10,000 of the buyer’s closing costs or pre-paids,” or “Special seller financing options,” or “Seller will buydown the buyer’s interest rate.”
Column 1: Home is listed for $500,000.
Column 2: A $20,000 price reduction lowers the buyer’s monthly payment by $95/mo and reduces their cash to close $4,119.
Column 3: The seller offers instead to pay $6,000 of the buyer’s costs. This saves the buyer $127/mo on their mortgage payment and $29,188 in interest over the next 15 years.
Column 4: The seller offers instead to pay $8,000 of the buyer’s costs. This saves the buyer $189/mo on their mortgage payment and $43,638 in interest over the next 15 years.
Column 1: Home is listed for $680,000.
Column 2: A 3% price reduction lowers the buyer’s monthly payment by $121/mo and reduces their cash to close $1,048.
Column 3: The seller offers instead to pay 3% of the buyer’s costs. This saves the buyer $407/mo on their mortgage payment and $95,501 in interest over the next 15 years.
Column 4: In order for the buyer to get the same mortgage payment as Column C, the sales price would have to be reduced to $611,500 (or a $68,500 price reduction).
The Seller Buydown Strategy is a win-win for all. It keeps the seller’s net proceeds higher and offers a bigger impact to the buyer through a lower monthly payment and long-term interest savings.
If you would like us to look at your listing, please let me know.
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