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If I pay money to your lender to lower your mortgage rate – permanently – will you make me a better offer on my house?
That’s a question that could become more commonplace as home sales slow, prices erode and mortgage rates increase. The cooling-off trend is well underway in many areas, according to Veros Real Estate Solutions, a Santa Ana, Calif., analytics company. Veros’ forecast for the coming year, released last week, reported that prices in “all but the most upbeat [markets] are slowing” across the country, and one out of five markets could see year-to-year declines.
But could mortgage assistance by sellers for buyers help cushion the impact of these market shifts, bridging the gap between what owners want – or need because their equity positions are thin – and what increasingly picky buyers are willing to pay?
Realty agents and lenders in some areas believe the answer is yes. Agents have begun touting “seller-assisted below market rate financing” on the lawn signs they post outside their listed homes. Others are boning up on a marketing technique that’s long been used by home builders but rarely seen in resale transactions in recent years: interest rate buy-downs.
The idea is straightforward. To make their house more attractive to buyers as a financial proposition, sellers can offer to lower buyers’ long-term monthly mortgage expenses. The sellers achieve this by paying money upfront to the buyers’ lender in order to reduce the interest rate. The lower rate continues for the life of the loan.
The reduction might cost the sellers two or three “points” – a point is 1 percent of the mortgage amount – and produce a reduction in the buyers’ note rate of one half of a percent. The points paid by the sellers represent interest paid in advance. A larger cash payment of points would produce larger rate reductions.
David H. Stevens, president and chief executive of the Mortgage Bankers Association, said “we did a ton of buy-downs” on resales during 2006-09 when he was a senior executive with Long & Foster Cos., the country’s largest independent realty brokerage. In the right circumstances, Stevens believes, “they can be a pretty good opportunity” for sellers and buyers to come together on a deal, even with today’s lower mortgage rates. It’s all a matter of making sure the numbers work for both parties.