Sellers buying down rates

[gn]

I came across the following from http://www.bubbleinfo.com

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The bellweather 30-year fixed rate for jumbo loans was raised by most lenders last week into the 8s. What does that mean for buyers?

If you are thinking of buying a home for $800,000 and wanted to put down 20% ($160,000) and were planning on getting a 30-year fixed rate on the remaining $640,000 at 6.75%. Your P&I payment would have been $4,151.03.

Now what are the choices if your rate is 8.25%?

1. Stick with the $800,000 price and a 30-year fixed rate of 8.25%:

Your P&I payment goes up $657.08, to $4,808.11.

2. Keep your payment about the same, around $4,151.03:

Change sales price to $690,000, payment is $4,162.02.

That is a drop of $110,000, or 14% in buying power virtually overnight – and the buyers are going to want the sellers to pick up all, or most, of the pain. Sellers, you are at the crossroads now – either lower your price or start thinking about other alternatives.

Here are some alternatives:

1. Seller could buy down the loan rate for the buyer. If you shop around you’ll find that rates in the mid-7s are available for 30-year fixed jumbos (at least earlier today they were). If the seller was willing to pay about 3.5 points on the $640,000 loan, he could help the buyer get the same 6.75% rate. Cost = $22,400.

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Now, the question is: $22,400 seems like a small price to pay instead of lowering the price. If I am a seller, I would gladly pay it to close the sale.

Given how hard it is to sell a house, why aren’t more sellers doing this ? Am I missing something ?

[temeculaguy]

I think the problem a seller and and a buyer wouldn’t go this route for a few reasons. Most sellers don’t have cash laying around, try to include that in the cost of the loan and the lender may balk and the appraisal may not come in anyway.

As a buyer I would prefer the price be lowered as opposed to the loanbought down because you lose flexibility to refi if rates go down, you pay higher taxes and you have a higher payoff if you sell.

I also think the 8.25 rate you are quoting is an exclusionary rate not the lowest available, lenders who don’t want to make loans raise their rate as opposed to shutting off the lights, the 8.25 is just another way to say “were closed.”

[temeculaguy]

I think the problem a seller and and a buyer wouldn’t go this route for a few reasons. Most sellers don’t have cash laying around, try to include that in the cost of the loan and the lender may balk and the appraisal may not come in anyway.

As a buyer I would prefer the price be lowered as opposed to the loanbought down because you lose flexibility to refi if rates go down, you pay higher taxes and you have a higher payoff if you sell.

I also think the 8.25 rate you are quoting is an exclusionary rate not the lowest available, lenders who don’t want to make loans raise their rate as opposed to shutting off the lights, the 8.25 is just another way to say “were closed.”

[temeculaguy]

I think the problem a seller and and a buyer wouldn’t go this route for a few reasons. Most sellers don’t have cash laying around, try to include that in the cost of the loan and the lender may balk and the appraisal may not come in anyway.

As a buyer I would prefer the price be lowered as opposed to the loanbought down because you lose flexibility to refi if rates go down, you pay higher taxes and you have a higher payoff if you sell.

I also think the 8.25 rate you are quoting is an exclusionary rate not the lowest available, lenders who don’t want to make loans raise their rate as opposed to shutting off the lights, the 8.25 is just another way to say “were closed.”

[HLS]

Your idea is good, however there are restrictions based on lending guidelines.
Depending on the loan program, seller concessions are limited to 3% or 6% of the selling price.
As stated, property must still appraise for higher amount and property taxes will be based on selling price.

Giving cash back to a borrower isn’t “legal” but could still happen.

A buydown can take 5-7 years to make sense, and some lenders have floor rates and don’t even allow a buydown.

Whatever will be will be. Lending ISN’T going away.
10% was a great conforming rate at one time.

The simple fact is that many people won’t be able to qualify for a loan. It’s been that way in NYC and SF Bay area for a long time. It’s not an entitlement.

The free market will find its level, with many people sitting on the sidelines.

Right Now,
Jumbo Loans (above $417k)
30 YR Fixed, 20% down are 7.625%.
(2nds are available up to 90-95%) with 680+ mid credit score. With a score above 720 or 780 it gets slightly better.
Still have to qualify.

Money is still available. Jumbo rates are higher than they were a month ago, but still less than they were years ago.

FYI 8.25% on the above would pay a 1% rebate/commission with a 780+ score, which is obscene in my opinion.

[HLS]

Your idea is good, however there are restrictions based on lending guidelines.
Depending on the loan program, seller concessions are limited to 3% or 6% of the selling price.
As stated, property must still appraise for higher amount and property taxes will be based on selling price.

Giving cash back to a borrower isn’t “legal” but could still happen.

A buydown can take 5-7 years to make sense, and some lenders have floor rates and don’t even allow a buydown.

Whatever will be will be. Lending ISN’T going away.
10% was a great conforming rate at one time.

The simple fact is that many people won’t be able to qualify for a loan. It’s been that way in NYC and SF Bay area for a long time. It’s not an entitlement.

The free market will find its level, with many people sitting on the sidelines.

Right Now,
Jumbo Loans (above $417k)
30 YR Fixed, 20% down are 7.625%.
(2nds are available up to 90-95%) with 680+ mid credit score. With a score above 720 or 780 it gets slightly better.
Still have to qualify.

Money is still available. Jumbo rates are higher than they were a month ago, but still less than they were years ago.

FYI 8.25% on the above would pay a 1% rebate/commission with a 780+ score, which is obscene in my opinion.

[HLS]

Your idea is good, however there are restrictions based on lending guidelines.
Depending on the loan program, seller concessions are limited to 3% or 6% of the selling price.
As stated, property must still appraise for higher amount and property taxes will be based on selling price.

Giving cash back to a borrower isn’t “legal” but could still happen.

A buydown can take 5-7 years to make sense, and some lenders have floor rates and don’t even allow a buydown.

Whatever will be will be. Lending ISN’T going away.
10% was a great conforming rate at one time.

The simple fact is that many people won’t be able to qualify for a loan. It’s been that way in NYC and SF Bay area for a long time. It’s not an entitlement.

The free market will find its level, with many people sitting on the sidelines.

Right Now,
Jumbo Loans (above $417k)
30 YR Fixed, 20% down are 7.625%.
(2nds are available up to 90-95%) with 680+ mid credit score. With a score above 720 or 780 it gets slightly better.
Still have to qualify.

Money is still available. Jumbo rates are higher than they were a month ago, but still less than they were years ago.

FYI 8.25% on the above would pay a 1% rebate/commission with a 780+ score, which is obscene in my opinion.

[SD Realtor]

HLS just checking a few things… I was under the impression that most lenders will not even allow people to buy down more then a point. Also yeah I have never seen more then 3% credit back for recurring or non-recurring closing costs. More then that, like trying to hide it in request for repairs or something, is enforced by the lender making escrow hold the money to be paid straight to the contractor. So I guess I don’t really agree with that bubbleinfo post. It’s heart is in the right place but in this environment with tighter standards… I don’t see it being possible.

SD Realtor

[SD Realtor]

HLS just checking a few things… I was under the impression that most lenders will not even allow people to buy down more then a point. Also yeah I have never seen more then 3% credit back for recurring or non-recurring closing costs. More then that, like trying to hide it in request for repairs or something, is enforced by the lender making escrow hold the money to be paid straight to the contractor. So I guess I don’t really agree with that bubbleinfo post. It’s heart is in the right place but in this environment with tighter standards… I don’t see it being possible.

SD Realtor

[SD Realtor]

HLS just checking a few things… I was under the impression that most lenders will not even allow people to buy down more then a point. Also yeah I have never seen more then 3% credit back for recurring or non-recurring closing costs. More then that, like trying to hide it in request for repairs or something, is enforced by the lender making escrow hold the money to be paid straight to the contractor. So I guess I don’t really agree with that bubbleinfo post. It’s heart is in the right place but in this environment with tighter standards… I don’t see it being possible.

SD Realtor

[HLS]

Hi SD,,,

Above 80%, seller concessions are usually limited to 3%.
At 80% or below, 6% max can be possible.

Some subprime “lenders” were limiting a point rate buy down at a cost of 2 to 2.5 points.

Prime lenders have many diff options. 30 YR conforming rates
were available as low as 5.25% recently WITH the buydown.
Buy downs of 2 or 3 points cost may make sense for some.

Programs are changing every day, really difficult to keep up.

There is a commercial on TV that talks about rates being “around” 5.75%.. (is 6% “around 5.75 ??)
It’s done with buy down fees, but leads people to believe that is the market rate.

[HLS]

Hi SD,,,

Above 80%, seller concessions are usually limited to 3%.
At 80% or below, 6% max can be possible.

Some subprime “lenders” were limiting a point rate buy down at a cost of 2 to 2.5 points.

Prime lenders have many diff options. 30 YR conforming rates
were available as low as 5.25% recently WITH the buydown.
Buy downs of 2 or 3 points cost may make sense for some.

Programs are changing every day, really difficult to keep up.

There is a commercial on TV that talks about rates being “around” 5.75%.. (is 6% “around 5.75 ??)
It’s done with buy down fees, but leads people to believe that is the market rate.

[HLS]

Hi SD,,,

Above 80%, seller concessions are usually limited to 3%.
At 80% or below, 6% max can be possible.

Some subprime “lenders” were limiting a point rate buy down at a cost of 2 to 2.5 points.

Prime lenders have many diff options. 30 YR conforming rates
were available as low as 5.25% recently WITH the buydown.
Buy downs of 2 or 3 points cost may make sense for some.

Programs are changing every day, really difficult to keep up.

There is a commercial on TV that talks about rates being “around” 5.75%.. (is 6% “around 5.75 ??)
It’s done with buy down fees, but leads people to believe that is the market rate.

[people_are_smart]

I was checking out Alder Woods Condos at 1423 Graves Ave, El Cajon. These are condo conversions. The sales office is advertising a $20,000 incentive. Actually, the flyer had $15,000 which was lined out and the greater amount hand written with a pen. These are offered in the 300K range so that would be around 6% or just over, depending on the unit. I was told by the sales kid that that is the limit the lender will allow. They are still advertising 0 down and 0 closing costs. The other interesting part is this final phase is being priced higher than the previous sales from earlier this year. Apparently they are still finding buyers who don’t bother to even research the complex they are considering buying in. Allegedly it is because the pool is closer to these units. Oh yeah, the “preferred” lender you have to use to get all the perks is really a mortgage broker. Seems weird.

I posted a thread on Alder Woods a few weeks ago under a different name. I couldn’t take the ditech.com ads anymore as they are so funny on so many levels. So I had to change it.

[people_are_smart]

I was checking out Alder Woods Condos at 1423 Graves Ave, El Cajon. These are condo conversions. The sales office is advertising a $20,000 incentive. Actually, the flyer had $15,000 which was lined out and the greater amount hand written with a pen. These are offered in the 300K range so that would be around 6% or just over, depending on the unit. I was told by the sales kid that that is the limit the lender will allow. They are still advertising 0 down and 0 closing costs. The other interesting part is this final phase is being priced higher than the previous sales from earlier this year. Apparently they are still finding buyers who don’t bother to even research the complex they are considering buying in. Allegedly it is because the pool is closer to these units. Oh yeah, the “preferred” lender you have to use to get all the perks is really a mortgage broker. Seems weird.

I posted a thread on Alder Woods a few weeks ago under a different name. I couldn’t take the ditech.com ads anymore as they are so funny on so many levels. So I had to change it.

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