October 13, 2022

I wrote about a 2/1 Buydown on rates a couple of months ago, but that was a different market, and I think this is an excellent loan now. It allows a buyer to take a lower interest rate for the first two years, then the loan is a fixed rate for the final 28 years, and everything is pre-set!

So let’s say we have a buyer buying an $800,000 property, putting 20% down. They don’t like today’s 30-year fixed rate payment at 6.99%. The seller wants to sell their house, and the buyer likes it and feels that rates will go down in 6-24 months because I told them that! LOL! If the seller pays 2% of the loan amount, we can get them a 2/1 buydown on the rate. The buydown would start their rate at 4.99% for 12 months, then 5.99% for 12 months, and then 6.99% for the remaining 28 years.

Doing a 2/1 buydown would put their PITI payment at $4365.08 in the first year, $4766.34 in year 2, and $5186.97 for the final 28 years. The cost to do this would be $12,800.00, paid by the seller.

If the buyer refinances or sells within the first two years, they will get a refund of the unused portion of the $12,800.00 buydown money. So imagine you pay for 12 months, and rates go down to 4.5%. You will get a refund of +/- $6000.00, and you do a refinance and drop your payment to about $4100.00 all in! I agree this could get scary, but prices will rise when interest rates fall. Plus, I have a good feeling about the 2nd quarter 2023.

When the Fed raises Prime, it usually takes about 6 months for the increase to help slow the economy. The Fed raised rates by .250% in March, .50% in May, .75% in June, .75% in July and .75 in September. It sounds like we will get an additional 1.25%-1.5% between now and the end of the year. These hikes should change the landscape by spring and likely slow the economy in 2023. The Fed’s aggressive moves may force them to lower rates in the latter part of 2023, and mortgage rates will drop significantly! So, I like this 2/1 buydown for many reasons!
Lastly, keep in mind that the payment in years 3-30 is the same as a 30-year fixed rate!

The CPI number came in today, and it was not pretty! It came in at 8.2%, and things are not getting much better. Rates soared again today, and there is no end in sight, but this, too, will pass!

• 30-year Government Loans (FHA / VA) is in the 6’s.
• Conventional Loans up to $715,000.00 - 6’s and 7’s
• High Balance Loans $715,001.00-$ 1,072,500.00 are in the 6’s and 7's
• Jumbo loans above $1,072,500 are in the 6’s and 7’s
• 5/1, 7/1, 10/1 Arms are in the 5’s and 6’s
• Bank statement loans - They are available with 10% down again! 7’s + depending on down and credit score.
• Stated income loans – I have one bank with 30% down, but everything else has to be perfect! Interest rates are in the high 7’s - low 8’s.
• 0 down loans are in the high 7’s to low 8’s- 620 credit score min right now! Mid 6’s, for the most part, up to $735,000.00.
• Private Money lenders - hard Money Loans – 35% down!
• No Ratio Loans 30% down
• Debt Service Coverage loans with as little as 25% down
• Bridge Loans - are typically 7.49% with limited fees – But they get you where you need to go!

Interest rates are subject to change without notice! Above are LA County Loan Limits.

I will be around all weekend if you have any questions or if someone interested in buying a property! My cell is (661) 714-6258, and my office line is (661) 260-2970 xt. 2222. Please text me at (661) 714-6258 or email me at Mike@AugustaFinancial.com. Have a great day and a better tomorrow! Please call me when you have a client that needs to borrow!