Who is up for free money? Everyone? There (obviously) isn’t any.

But, there are “payment programs” that can initially lower the lower monthly payments. But, they don’t expand “buying power” as buyers MUST qualify at the fully indexed rate of 6.5%, not the starter rate of 4.5%

Also, there’s a 3-points cost, and someone will be footing the bill. That could be you very soon. After all, how many of your buyers have an extra 3 points for loan fees in addition to all the other transaction costs for COE.

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Some (legal disclaimer) “big box/brick and mortar companies” are trying to pass off their programs’ costs to agents.

Need proof? Google “Interest Rate Buydowns”

Call a customer service rep; if you can, as some (legal disclaimer) don’t list a direct phone number. Most CS people are simply telemarketers (only in reverse) and can’t explain the program as “they just screen callers”.

Then, most (legal disclaimer) lenders require a borrower to go through the entire (online) app process (and access a credit report) before a buyer gets a live voice or goes to the next “level” of support.

It’s all About Churning Loans

Let me show you and your buyers how this buydown loan is “most often” structured” and sold to the public.

Whenever rates skyrocket, lenders always come up with “gimmicks” to sell the clients while padding their bottom line at the borrower’s expense.

Before the reforms of the Great Recession, the national lender’s weapon of choice was “neg -am” (negatively amortized) loans with prepay penalties.

National lenders are now hawking a “2-1 buydown”, falsely claiming buyers can more “easily qualify” Fannie, Freddie FHA and VA don’t allow for that.

Before I illustrate the other negatives of this loan program:

Let’s do the Math – All Figures Rounded Off

Standard Fannie/Freddie Loan Type: 30-year fixed rate

Purchase Price $1 Mil   Loan Amount $800k

Points: Zero… Interest Rate 6.5%. Monthly “PI” Payment $5050

 Annual “PI”: $60,600 Year 1 Annual “PI” = $60,600 Year 2 

Total “PI” paid thru 24 months= $121, 200 with no points

————————————–VS———————————–

“Temporary Buy Down”

30-year Loan 2/1 Buydown

 Purchase Price $1 Mil Loan Amount $800k

Points: 3

Year 1 Rate 4.5%.

Year 1 Monthly “PI” payment $4050

Year 1 Annual “PI”: $48,600

—————————–

Year 2 Rate 5.5%.

Year 2 Monthly “PI” payment $4540

Year 2 Annual “PI”: $54500

Total 24 months of  PI= $103,100

Loan Fee: 3 points= $24k

Grand Total $127,100

The programs cost to “someone” is $6k higher (over 24 months) when compared to the Standard Freddie/Fannie loan.

Who Pays the 3 points and Other “Fun Facts”

1)  This loan program is not available for second or “investment/non-owner occupied” properties.

2)  Also, the loan cannot be used for a “cash out” refinance.

3)  The borrower has to qualify at the 6.5% note rate, not the 4.5% start rate.

Who Pays What!

Fannie Mae guidance states these Interested Party Contributions or IPCs may be paid for by the property seller, the borrower’s employer, the mortgage lender, the borrower or “other interested parties” (real estate agents or employers).

Can the buyer’s employer pay for the “buy down” ?

a) Yes. But it’s rare, and involves a relocation and/ or new employment contract of which I’ve seen 2, in 40 years.

Fannie MAY Allow for Credits up to 6%,

b) Not since the 1990s have I seen a lender allow more than 3% for closing costs for any transaction from a seller /and or their agents.

c) Nor in today’s interest rate market do lenders offer more than a 2% credit for closing costs.

In Closing

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As an agent, you are often the buyer’s first point of contact for financing, so be prepared to look good; after you’ve verified my math, you will be saving an unwitting buyer (or yourself) $6,000 in just a mere two years.