Mortgage rate buydowns: How Horry Co. builders are keeping prices up & buyers coming
HORRY COUNTY, S.C. (WPDE) — Not even the cold weather can cool down the housing market in Horry County, as home builders are finding creative ways to keep prices stable while also giving buyers more power.
Mortgage rate buydowns are the latest offer for people looking to buy new construction homes.
It's a program that is offered to reduce the rate at which you are taking out your 30-year fixed mortgage rate, and it allows for more buying power because of that reduced interest rate.
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The two most common types of mortgage rate buydowns are 2:1 rate buydowns and permanent fixed buydowns.
A local real estate agent with EXP Realty, Matt Harris, explained how the program can help homebuyers get into their house and maintain property value.
"A rate buydown is a one to two point reduction in the interest rate over one to two years, and then in that third year, permanent fixed rate at that point. Then a permanent rate buydown would be a buydown to a fixed rate, and the seller is contributing a cloning credit at closing," said Harris. "In the end, the buyer wins with a reduced interest rate and the seller wins by maintaining property values."
This type of program allows builders to keep home prices from dropping because of the added purchasing power it gives potential home buyers.
While 2:1 rate buydowns could give someone a lower interest rate for the first two years, the mortgage rate would rise to the current rate level at the time the home was purchased. Which means, you could be paying substantially more in the third year.
Mortgage rate buydowns sound similar to adjustable rate mortgages. Which was one of the many factors that led to the 2008 housing crisis.
However, Brandi Minchillo, a realtor with RE/MAX Southern Shores, said we are in a much different market today because of the strict lending requirements.
"In 2008, we were lending more money than buyers were qualifying for. We were giving money away from non-qualified buyers. That's not the case in today's market," said Minchillo.
The experts we spoke with today also said to make sure you shop local lenders along with any on-site lenders, so you get the best financing available.
All lenders are required to provide a good-faith estimate, and it is important to take a good look at that to make sure you are getting the best deal possible.
