Real Estate Agents: How To Stop High Mortgage Payments From Killing Your Business!

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How do you overcome the #1 buyer objection these days?

 “I don’t want to pay these high interest rates and high mortgage payments! I’m going to wait for the rates to come down.”

They don’t have to wait; they just have to utilize a different type of mortgage.

There are several ways to overcome higher rates.  We’ll show you the top three, which are Buy-Downs, Paying Discount Points, and Adjustable Rate Mortgages, (aka ARMs).

This information is not just for buyer’s agents, it’s also for listing agents to understand how these programs work.  

Remember: just because a buyer asks for closing costs or is getting a mortgage that’s not a standard, 30-year fixed, does not automatically make them a risky buyer!  Maybe they’re just getting a lower rate so they have lower payments.

Note: Credit scores are at an all time high nationwide.  Home equity (this translates for sellers who are also buyers turning their equity into their down payment), is at an all time high.  30, 60, 90 day late payments are at an all time low.  This means that most buyers are in a STRONG position to buy, and are likely just taking advantage of different types of loan products, versus choosing an inferior loan product as some listing agents believe.

Listing agents: do your research before you shoot down a buyer just because you’ve never heard of their loan program, or because you believe that ARMs are evil and have a terrible reputation!

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Buy Downs

A ‘BuyDown’ is a mortgage where the buyer obtains a lower interest rate for at least the first few years of their loan.  

There are different types of buy downs.  A 2-1 buy down is where the buyer has a lower rate for the first two years of the loan.  A 3-1 is for the first 3 years of the loan.

They buydown fee (points) can be paid by the seller on behalf of the buyer, or by the buyer themselves.  When a buyer asks for closing costs to be paid by the seller, this is where the money can go.

Builders utilize this type of financing routinely. This is why closing on a new construction home is likely to have a lower interest rate, thus a lower payment.  

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Since builders ‘subsidize’ lower mortgage interest rates, a buyer might have the same payment on a higher priced home using builder financing as they would using a typical, 30-year fixed rate (at the going rate) on a resale home.

Whether it’s a home builder or a resale seller who is subsidizing the rate buy down, typically the price is raised to compensate. 

Let’s take a couple of examples:

3-2-1 Buy-down

In a 3-2-1 buydown, the buyer has lower payments for the first three years.  For each of those first 3 years, their interest rate goes up by 1% annually.  The full interest rate then applies beginning on the 4th year of the loan.  They can, however, re-finance or sell the home at any time.

2-1 Buy-down

In the 2-1 buydown, the discount is applied for the first two years, providing a 2% lower interest rate for the first year, then a 1% rate discount for the second year and then on the third year it adjusts to the actual rate.  

They buyer on their own behalf, or the seller or builder pays the lender for the subsidy.  This is paid at closing.

Buyers can qualify easier with lower rates, and enjoy lower payments for the first couple to few years of the loan.  This makes sense especially for buyers who expect their incomes to rise or add a spouse’s income in the next few years.