My friend Jay Vorhees at JVM Lending wrote a great blog about the difference between permanent and temporary buydowns – and I think this is information my clients and readers should know about, too! Here is a shortened version of Jay’s blog below, with my two cents added at the end.
A “permanent buydown” is when buyers or sellers pay points (1 point = 1% of the loan amount) to permanently buy down a borrower’s interest rate. In this market, one point will buy down a rate by about 1/4 of a percent. Either buyers or sellers can pay permanent buydown points.
A “temporary buydown” is when the seller pays points on behalf of the buyer to buy down the rate significantly more, but only temporarily. A 3-2-1 buydown, for example, buys down the rate 3% in year one of the mortgage, 2% in year two, and 1% in year three. But, after year three, the rate goes back to the full market rate. For more about temporary buydowns, click here.
Some believe permanent buydowns make more sense because buyers get a lower rate for a full 30 years and, therefore, save far more money overall and qualify for more. But, here’s the issue: nobody keeps their loan for 30 years!
That is especially the case now because so many macro-observers believe that rates will be markedly lower in several months, making a refi into a lower rate extremely likely. So, if a buyer (or seller) pays permanent buydown points, those points will all be wasted once the loan is refinanced (meaning the buyer does NOT get the points refunded).
On the other hand, if a seller pays temporary buydown points, the buyer will get all of the unused points back if he or she refinances before the temporary buydown period ends. This is because the unused temporary buydown points are all held in an escrow account and can thus be used to pay down principal when buyers refinance.
When all is said and done, I do love temporary buydown points but hate permanent buydown points – now more than ever, because rates are going to fall.
Keeping Current Matters sent an article about homeownership that I found interesting. There are so many benefits to owning a home, but we usually talk about the investment side of things more than the rest. So, let’s talk about the emotional (and non-financial) benefits of owning a home. Here is the original story.
With higher mortgage rates, you might be wondering if now’s the best time to buy a home. While the financial aspects are important to consider, there are also powerful non-financial reasons it may make sense to make a move. Here are just a few of the benefits that come with homeownership:
1. Homeowners can make their home truly their own
Owning your home gives you a significant sense of accomplishment because it’s a space you can customize to your heart’s desire. That can bring you added happiness. In fact, a report from the National Association of Realtors (NAR) shows making updates or remodeling your home can help you feel more at ease and comfortable in your living space. NAR measures this with a Joy Score that indicates how much happiness specific home upgrades bring. According to NAR:
“There were numerous interior projects that received a perfect Joy Score of 10: paint entire interior of home, paint one room of home, add a new home office, hardwood flooring refinish, new wood flooring, closet renovation, insulation upgrade, and attic conversion to living area.”
2. The responsibilities of homeownership give you a greater sense of achievement
There’s no denying taking care of your home is a large responsibility, but it’s one you’ll take pride in as a homeowner. Freddie Mac explains:
“As the homeowner, you have the freedom to adopt a pet, paint the walls any color you choose, renovate your kitchen, and more. . . . Of course, along with the freedoms of homeownership come responsibilities, such as making your monthly mortgage payments on time and maintaining your home. But as the property owner, you’ll be caring for your own investment.”
You’re not taking care of a living space that belongs to someone else. The space is yours. As an added benefit, you may get a return on investment for any upgrades or repairs you make.
3. Homeownership can lead to greater community engagement
That sense of ownership and your feelings of responsibility can even extend beyond the walls of your home. Your home also gives you a stake in your community. Because the average homeowner stays in their home for longer than just a few years, that can lead to having a stronger connection to your local area. NAR notes how that can benefit you:
“Living in one place for a longer amount of time creates an obvious sense of community pride, which may lead to more investment in said community.”
If you’re looking to put down roots, homeownership can help fuel a sense of connection to the area and those around you. The bottom line? If you’re planning to buy a home this year, there are incredible benefits waiting for you at the end of your journey.
Give me a call if this sounds like something you’re interested in!
If you’re planning to buy a home this year, there are incredible benefits waiting for you at the end of your journey, including the ability to customize your home, the sense of achievement homeownership brings, and a greater connection to your community. Connect with a local real estate professional to discuss everything homeownership has to offer.
I get emails from MovingGamePlans.com sometimes about how to best organize, simplify, and gamify clients’ moves to their new homes. They recently shared a post about moving tips that I thought we’d have a little fun with:
1. Use the correct boxes (even if you’re on a budget!)
It’s tempting to use a bunch of old, ratty cardboard boxes to haphazardly throw your belongings into. Instead, make sure to get the prop–ah, who are we kidding? You’re going to use the old, ratty ones anyway, aren’t you?
2. Make sure to allow enough time
One day of packing per room should do it, because we all know packing is always a stress-free streamlined activity you can totally put a time limit on. We don’t even know what time it is right now. Thanks, Daylight Savings.
3. Color code the boxes
Hold on, so you’re telling me I have to go get the right boxes, pack each room in one day, and THEN color-code the things? I am not Marie Kondo.
4. Pack one room at a time
Okay, I can actually do this. Mostly because I will be buried underneath all the belongings I meant to sell or give away in 2013.
5. Create an essentials box
You don’t understand. All of this is essential. Yes, even the Santa salt shaker I always forget to put out for the holidays but vividly remember receiving as a gift from…um, from…um, well, probably someone important!
6. Develop a moving timeline
I do have a timeline! I need to be out of this house in exactly one week, meaning that I have (deduct the square root, carry the one…) exactly 6 days and 23 hours before I actually start frantically packing and throwing everything I own into random boxes. Uh-oh.
In all seriousness, moving (and packing) is a big chore. I am happy to recommend movers, cleaners, and more to my clients when the time comes to move into or out of a home. Just give me a call!
I saw an article in Forbes recently discussing the “cooling” real estate market. That adjective to describe the housing market probably gives potential sellers the chills, while exciting many potential home-buyers. But, many home buyers are actually wondering if buying a home now, with rates at 7%, is a smart move.
The answer to that? Owning a home is always a smart investment. If you plan to own the property for at least five years, you can bet on it paying for itself in the end. If you want to read more good reasons for prioritizing a home for purchase, I highly recommend clicking on the Forbes link up above. It’s worth checking out!
The news always sensationalizes issues as a whole, it is all doom and gloom. However, most people buy or sell homes due to life events such as marriage, job in another city, another baby, a divorce or a death. Rates rarely are thought of when life happens. I bought my house in 1999 at 8.5% not knowing any difference or thoughts about the rate. It was an interest only purchase, however the next 13 years it was refinanced over 7 times. I ultimately ended up with 2.75% 30 year fixed. In that time, the value of my home has increased 4 times the initial price. I now have a ton of equity in my home, which I would not have it I didn’t purchase a home. Buying our home used all our savings and it was tight for the first couple of years. Best investment I ever made.
Other reasons to buy a property some of which are highlighted in the Forbes article as there are many: (1) avoid rising rents with a fixed housing payment; (2) tax advantages; (3) ability to do what you want with the home; (4) forced savings/retirement nest egg; (5) pride of ownership; and (6) inflation hedge.
Finally, this transitioning market makes it easier for buyers to get a home, prices have come down, there are not as many offers, you are not competing against 20 offers and having to remove all your contingencies. You can actually ask for a credit or repairs and get it. Some are predicting rates will go down sometime next year, if that happens, prices and competing will go up and you can just smile while sitting in your new home and start the refi process for a lower payment.