Mike’s Real Estate Show

This is using a property I now have for sale at 432 Orchard Street, Santa Rosa and for this example a sales price of $497,900 with 20% downpayment and loan amount of $398,320. We will assume a rate on this loan of 6.25% fixed at 1point (1% of the loan amount). This program is called a 2-1 temporary buydown which gives the buyer/borrower a rate 2% lower than the initial start rate of our 6.25% rate. The first year payment will be based on 4.25%, the second year at 5.25% then for the rest of the life of the fixed rate loan the rate will be 6.25%! The borrower qualifies at the bought down rate of 4.25%.The payments look like this: 1st year @4.25% equal monthly payment of $1959.49, second year at 5.25% equal monthly payment of $2199.54, third year and for the rest of the life of the loan at 6.25% equal monthly payment of $2,452.52.

  The cost for the “Buydown” is the difference between the “normal” rate of 6.25% and the lower rate’s payments. So at 6.25% payment of $2,452.52 minus the payment of $1,959.49 at 4.25% is $493.03 x 12 = $5,916.42…payment of $2,199.54 at the second year 5.25% minus the 6.25% payment of $2,452.52 is $252.98 x 12 = $3,035.00 cost plus the $5,916.42 which gives us a total of $8,952.18 for the 2-1 buydown program using the 6.25% “normal” rate…you qualify more people at the bought down rate for the purchase of the home. For approximately $9,000 you can offer below market financing and entice more buyers/borrowers to make an offer on your home. It’s a good program. Instead of lowering our price $20,000 or $30,000 consider using part of the reduction for this novel program.