Have you ever heard of a 2-1 rate buydown for mortgages? How about a 1-1 rate buydown? What about a long-term rate lock with a float down? Did you know that there are programs designed to help people in certain professions?
With the market conditions constantly changing, it is important that you investigate all mortgage options to assist with your real estate purchase. You may be surprised by all the ways to negotiate a lower rate. Here are some for your consideration.
Rate Buydown
A rate buydown is an excellent negotiating tool for both sellers and buyers at the moment.
Selling your home with no offers and want to entice buyers? This is an option to consider before (or in addition to) lowering the sales price.
Buying a home and want to request a rate buydown from the seller? Why not try asking for it.
Here is how it works in a nutshell: the seller pays money to the lender to lower the rate a certain amount for a fixed time. The buyer enjoys a lower rate for that fixed time period and then the rate adjusts to the locked rate after the fixed time.
2-1 Rate Buydown
Let’s use a real example for a 2-1 rate buydown:
- Let’s say the current rate is 7% and this is what the buyer must lock in
- The seller pays money to the lender to lower the rate 2 points (in this case to 5%) for year one of the mortgage and then lower the rate for 1 point (in this case 6%) for year two of the mortgage.
- Since the rate is locked at 7%, the mortgage will adjust to this rate for year 3 and beyond.
- The buyer enjoys a lower rate and monthly payment for the first two years of home ownership.
- The buyer has the ability to refinance the rate if the rate drops below the locked rate.
As you can imagine, securing a lower rate would be very enticing to buyers when the rates are high. Lower rates often means a larger pool of eager buyers. More eager buyers often means happy sellers. Win-win.
Please note that the seller is not the only party that can offer the rate buydown. A lender may agree to help with the buydown cost. Additionally, a lender and seller may work together to buy down the rate for the buyer.
1-1 Rate Buydown
A 1-1 rate buydown works the same way. The only difference? The rate is only decreased by 1 point for a time period of 1 year total.
Lock & Look
Some mortgage companies have a way to lock your rate before you are even under contract. Doesn’t that sound amazing? If you are trying to close on a home in the next 90 days, this may be a great option for you! In addition, if the rate drops within the time period, there is a way to “float down” to the lower rate and lock that in. Of course there may be a cost involved if you do not close in 90 days. To learn more, check out Atlantic Bay Mortgage’s program called Lock & Look. You can read more about this program here.
Adjustable Rate Mortgage (ARM)
Need another option for a lower mortgage rate? An adjustable rate mortgage (ARM) could be your answer. In a nutshell: you can secure a lower rate loan for a certain period of time, and after that time period, the rate will adjust up or down based on the Secured Overnight Financing Rate (SOFR) index.
Let’s say that you secured a 7/1 arm. That means that your rate is locked for the first 7 years and then will adjust every 1 year after the lock period ends. While this may seem risky, keep in mind that many people live in their home for an average of 7 years. Also keep in mind that if the overall conventional rates drop below your locked rate, you may have the option to refinance and lock that in for the next 15-30 years.
Only you can decide if an ARM makes sense for your situation. Will you live in your home short term? Then this may be a great option. Do you need a lower monthly payment? Once again, this may be a great option. If you live in the home longer than the lock period, you can always refinance to a longer locked rate.
Read more about ARMs here.
Special Programs
Are you a doctor? An attorney? A first responder? Do know how many special programs exist for specific professions? First Horizon Bank offers the following:
- Doctor Loam Program: 100% financing and PMI up to 1.5million
- Community Heroes Loan Program: 3% Down and No PMI
- Professional Loan Program: 3% Down and No PMI
And that is just to name a few. If you would like more info on how to qualify and apply, click here.
In Conclusion
There are many options for securing a lower mortgage rate. Don’t get immediately scared off by higher rates. With a little research and digging, you can find a monthly payment that works for you. Remember to stay positive and focused!
Learn More…
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