The Fed’s repeated raising of interest rates has had a dramatic impact on home-selling, scaring off a lot of buyers and halting Houston’s unprecedented record-setting hot streak of home-selling streak with nine consecutive months of declines, December sales of single family homes down 32>6% year over year, according to the most recent report from the Houston Realters Association.
The agent whose opinion I trust most is Lily Jang, host of Channel 2+’s House 2 Home, and one of the mortgage dealers she trusts most is Allison Celeste of Independent Fairway Mortgage in Houston, so that’s who I turned to for a deeper understanding of what is happening with increasingly popular mortgage buydowns.
“In these times, mortgage buy downs become popular again because they are looking for ways to stimulate homebuyers out there who are fearful of high interest rates but still want to purchase the home and see the value of long-term home ownership,” Celeste explains to KTRH News.
It works like this. Say you qualify for a loan with a 5.75% interest rate. The lender will drop that by 2% to 3.75% for the first year, drop another 1% in the second year to 4.75%, and apply the original rate of 5.75% in the third year. It could save as much as $250 a month on the monthly mortgage payment in the first year for the homebuyer, and that could help pay for appliances, carpeting, or safety features.
Sure, I know what you’re thinking. The same thing I thought. This reminds me of the shenanigans being pulled by lenders in 2008 that led to a housing collapse that crashed the economy and caused a recession that took a very long time to claw back from.
It’s not.
Allison Celeste says this is a legitimate way for lenders to work with buyers to make homeownership accessible, fair and reasonable for everyone. It comes with caps. “As to how much the interest rate can increase, it’s not a balloon interest rate like we saw in 2008. There is a cap. It cannot go above what we qualified the buyer off to begin with. So if the market rate is 5.75% for them today, when that temporary buydown period ends, it will not exceed that 5.75% again.”
In scary financial times, cooler heads will look at all options, and it’s important to know there are options available. Work with people you trust.
photo: Getty Images