Seller Buy Down Options: What's New in Today's Home Industry?

Sheryl Landrum
LoanBiz Columnist


With higher interest rates and a depreciating housing market, keeping the home industry moving is a challenge; however, one new trend is keeping both home buyers and home sellers happy: the seller buy-down option. What is it and what does it mean to you when selling or buying a new home?

The ABCs of a Home Sale Buy Down Option

Home sellers are finding mortgage loan interest rate buy-downs are just the ticket to entice prospective home buyers in today's slower housing market. Instead of lowering the price of their home, home sellers are offering to buy-down their buyer's home mortgage interest rate. This allows the seller to maintain their home's value while opening the door to many more potential home buyers.

The most popular buy down is the 2-1 buy down in which the buyer's mortgage interest rate is 2% below the negotiated rate the first year of the mortgage loan, 1% below the negotiated mortgage interest rate the 2nd year of the mortgage loan, and at the negotiated rate the third year of the mortgage loan and thereafter (if it is a 30 year fixed rate loan term). For example, let's take a 30 year fixed rate mortgage loan of $400,000 at 6.25%; using the 2-1 buy down your mortgage payment would be:

• 1st year @ 4.25% interest = $1,968 principle and interest
• 2nd year @ 5.25% interest = $2,209 principle and interest
• 3rd year @ 6.25% interest = $2,463 principle and interest

This buy down option would probably cost the seller $8,988. However, when you think of spending $8,988 in order to qualify, and attract, a lot more buyers to purchase your home instead of dropping its price by $10,000-$20,000, the seller buy down option is the best way to sell your home quickly and get the asking price you deserve.

About the Author
Sheryl Landrum is a Senior Loan Officer with First Capital Mortgage in San Diego and Prudential Realty in Bonsall, California.