Has your home been on the market long? Do you feel like selling your home is an insurmountable task? Selling your home can feel hopeless the longer your property sits awaiting a buyer. As sellers struggle to attract buyers, they are confronted with ideas like price slashes or full remodels to sell to their homes. These ideas would inevitably cost thousands, reducing the gain from the listing price, and leave a seller wondering if there is a better way. Perhaps what you’ve been waiting for is a 2-1 Buydown.
It’s Hard to Sell in the Current Market
Since the beginning of 2022, sellers may have noticed a decline in property purchases.
In fact, the National Association of Realtors says that
“existing-home sales declined for the fifth straight month to a seasonally adjusted annual rate of 5.12 million. Sales were down 5.4% from May and 14.2% from one year ago.”
https://www.nar.realtor/newsroom/existing-home-sales-slid-5-4-in-june
The national inventory of unsold homes is on the rise, almost parallel to the rise in interest rates from 2021 to 2022. The housing market interest rates have seen a steady increase from the average 2.96% in 2021 to 4.61% at the end of Q3 in 2022. Current buyers have now watched interest rates cross 5%, with no projections for drastic decreases any time soon.1
1https://themortgagereports.com/61853/30-year-mortgage-rates-chart
With increasing buyer fearfulness, how can you, a seller, stand out and encourage buyers to choose your home as their first option? Offer a 2-1 Buydown agreement.
What is a 2-1 Buydown?
The 2-1 Buydown: The seller contributes an upfront fee, which lowers the buyers effective interest rate by up to two percentage points for the first two years of their loan.
This lowers initial monthly payments, giving the buyer more funds to turn their new house into a dream home, or to use in any other financial goals, and gives them time to plan for the higher interest payment after the first, and then second year.
You, the seller, will have provided a unique experience by enabling the buyer to build equity as they ease into their new home.
2-1 Buydown Inspiration Story
The following story is fictional, loosely based on a real sale, and is used to explain how a 2-1 Buydown could help a seller incentivize a buyer.
A seller named Benjamin Smith, like you, dreaded each passing day as his property listing had no potential buyers.
After weeks of constant turmoil, he turned to his friend, a loan officer at Benchmark. After a lengthy conversation about market prices and interest rates and the awful feeling from not being able to sell his home, they discussed the idea of a 2-1 Buydown. The following week, Ben’s Realtor mentioned that a buyer had interest in the home, but wasn’t fully convinced yet.
Ben asked his agent to express that he would be willing to do a 2-1 Buydown. The buyer was very happy with the idea of two years of lower payments, and planned to use the resulting savings to remodel the garage into a home gym.
He had a $250,000 loan with a note rate of 5%. The monthly payments would be $1,342. After Ben’s temporary 2-1 Buydown of $5,232, here’s what the reduction in monthly payments would look like for the first two years. (APR 5.558% at 5.375%)
| Year | Rate | Monthly Payment |
|---|---|---|
| 1 | 3% | $1,054 |
| 2 | 4% | $1,194 |
| 3 | 5% (original rate) | $1,342 |
That left our homeowner Ben with an extra $288/mo for the first year, and an extra $148/mo the second year before the original interest rate begins in the 3rd year. That’s a total of $3,456 saved in the first year, and $1,776 saved in the second year, for a combined savings of $5,232 (the 2-1 Buydown amount) for the first two years of homeownership. This also gave Ben the opportunity to buy now, and time prepare for higher payments later, rather than waiting to buy (which has its own costs).
Sell faster with a 2-1 Buydown from Benchmark
Ready to learn more? Get the sellers’ edge, and help your buyers start building family wealth with a 2-1 Buydown agreement with Benchmark.
Contact your local Benchmark branch. Contact us today for personalized information. Call me yourself or request a call from me. WeI would be honored to provide you with our famous excellent service for your new loan.
Benchmark brings you home.
