Creative Strategies to Buy a Home in 2024

Affordability in today’s market

Affordability has been a hot topic in the real estate world over the last 18 months. As interest rates have risen, so have home ownership costs. Monthly mortgage payments are on the rise due to home appreciation, property tax increases, and interest rate increases.

Thankfully, though, there are ways to reduce a Buyer's monthly mortgage payment when purchasing a home, and that is through creative negotiations and the application of seller concessions.

You might be thinking to yourself - WTH does that even mean haha??

Don't worry! I'm here to explain everything and give you an inside look at what I mean. Here is an example of how I just helped one of my clients save $509/month on their mortgage!

a couple of definitions for you as we get started

Seller Concessions: These are incentives or financial contributions that a seller can offer to a buyer to help close a deal. They can cover various costs such as closing costs, pre-paid taxes, and insurance, repairs, or even buy down the interest rate on the buyer’s mortgage.

2/1 Buydown: This is a type of mortgage in which the interest rate is reduced for the first two years of the loan. In the first year, the rate is typically reduced by 2%, and in the second year, it is reduced by 1%. After the initial two years, the rate returns to the original fixed rate for the remainder of the loan term unless a Buyer refinances at any given time during the two years.

Generally, when a buyer is searching for a home, a Buyer is zeroed in on the purchase price of a home and focused on getting the biggest bang for their buck. What many buyers don't know is that when you are purchasing a home with a 30-year mortgage, a price reduction doesn't generally move the needle all that much on the monthly mortgage payment.

let’s do the math

If you were looking to purchase a home for $565,000 and you wanted to negotiate the price down to $555,000, that $10,000 price reduction saves you about $70/month in a monthly mortgage payment.

Instead, a buyer's agent could negotiate that $10,000 to go towards seller concessions. This would net the seller the same $555,000 net proceeds, but instead of reducing the purchase price for the buyer, the $10,000 would go towards a 2/1 rate buydown.

In this instance, with a purchase price of $565,000 and a 2/1 buy down costing just under $10,0000, a Buyer's first year of monthly savings would be $509/month, and the second year of owning the home would equate to $260/month in monthly mortgage savings.

This equals a total savings of $9,228 over the course of two years with a 2/1 rate buy-down, compared to only $1,680 with a $10,000 price reduction. 

THE BOTTOM LINE

As you can see across these two examples, a buyer's savings with a 2/1 rate buy down is much more advantageous. It is a great way to help with affordability for any homeowner looking to purchase a property in this market. As rates continue to be a moving target, I think it's more important than ever for buyers to express their real estate goals and to work with a professional who is going to help them seek the best strategic approaches for their circumstances with the greatest outcomes.

I'm rooting for each of you on your real estate and financial journeys and will continue to share more tips and tricks soon!

Jen

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