2/1 Buy Down - How Buyers Are Hacking Their Interest Rate

Christian: [0:08] Hello, hello, and welcome to another edition of the Awesome in Seattle podcast. This is your host Christian Nossum with the Awesome Nossum Group at Wilson Realty Exchange, Inc. Today we got a special guest, and we're actually in the studio. In a studio. It's not my studio. It's your studio.

Dan: [0:22] Crash at my studio.

Christian: [0:23] I know. I love it. This is great. It's awesome. I'm a guest in my own house. It's beautiful. Yeah. So thank you, Dan. Yeah. Uh, I have the one and only Mr. Dan Keller, New American Financing. New A- New American Funding, sorry.

Dan: [0:33] Same thing. Same- Funding, financing … Speaker: yeah, it's all money. All money.

Christian: [0:37] So this, this hearkens back to our old school days of being on the radio. We had a radio show called Seattle Real Estate Radio for years.

Dan: [0:46] KKOL

Christian: [0:47] Business Radio. KKOL 1300 AM. It was widely listened to by my mom.

Dan: [0:53] Yeah. A couple of people on social media that were bored. Yeah.

Christian: [0:56] Yeah, yeah. Um, it was fun, though. It was a lot of fun. We did that, we did that for years and years.

Dan: [1:01] I loved doing it 'cause it kept me current. Exactly. You came with stats, we came with a guest, and it kept me current on the market, and it was… Believe it or not, it was really good content.

Christian: [1:08] It was, it was really good content. Yeah. Um, we, we joke 'cause it was AM radio, but, uh-

Dan: [1:14] Hey, now we do podcasts

Christian: [1:15] Now we do podcasts. We don't have to, we don't have to drive downtown and get into the studio anymore- Right deal with that, with the mics that smelled like nachos. Right. Remember that?

Dan: [1:23] Yeah.

Christian: [1:23] Yeah. So- … good times. Yeah. Good times. The other beautiful thing about having the studio is we actually have video components today. So if you're listening, you can also go to the Awesome Nossum Group YouTube channel and watch this. If you're on your podcast, favorite podcast listening app, you can click on the show notes and link out to the video if you wanna watch us. Which might be handy, 'cause we are gonna go over some numbers. Yeah. Because today's episode is all about a buyer's strategy called a 2-1 buydown. That's what we're talking all about today is the 2-1 buydown. So let's, uh, let's first… I'll let you introduce yourself. Yeah. Because I know you got a… Since we are talking numbers, I don't wanna get you in trouble. On the radio show- Yeah … I'd always, I'd always prompt you for this just to keep you compliant. So why don't you, why don't you give your, your rundown real quick, Dan?

Dan: [2:14] 115-349- … if you'd like to call. Uh, no, I am a mortgage professional. Yes. Been in the mortgage industry for about 15 years now, so I do need to, to disclose my MLO number. It's, uh, 115349. I know. Um, and we're gonna be talking about- Financing, but also need to send the disclaimer that we're not giving anyone financial advice. These are strategies. You know me, we've been working together for almost 10 years now. Yep. I'm all about awareness and options.

Christian: [2:40] Yes.

Dan: [2:40] And I think that when you, a lot of times when home buyers work with banks and credit unions and other mortgage brokers, sometimes you just get, "Hey, here's your loan program. You're pre-approved. Go to work."

Christian: [2:49] Mm-hmm.

Dan: [2:49] And, uh, what we're doing today is we're just bringing about a really great money saving option because we're in a time right now, Christian, and I know you have experienced this before in your career, where mortgage rates, believe it or not, are not always 3% or- … three and a quarter like they have been for the last- No seven or eight years, right? Yes.

Christian: [3:05] Exactly.

Dan: [3:06] They go up and down, and sometimes they go up- Yeah … pretty, pretty dramatically. And that's- Yeah … what we're seeing right now. We're seeing close to 7% 30-year fixed, but over the last five years we've been used to thr- 2.8 to 3 and a half, right? Mm-hmm. So what do you do when your buying power, uh, gets taken away from you? What do you do when home values continue to rise, but then you also know that because Fannie Mae has come out and a lot of investors have come out, Cit- I believe Citicorp's come out and said that once the Fed tames inflation, mortgage rates will come back down into a reasonable- Yep … kind of range- Yep which is the 4%-ish range. Mm-hmm. So what do you do in the interim, in the next one to two years? In comes the 2-1 temporary buydown, or some people will call it the seller-paid 2-1 temporary buydown. Yeah.

Christian: [3:52] So let's, let's kind of go over why that's such- Mm-hmm … a strong strategy for buyers to implement right now with their offers, and what that kind of means, just in general terms. Mm-hmm. And then we'll kind of break it down with some actual numbers on- Yeah … kind of average purchase prices that we're seeing our, our clients use.

Dan: [4:07] Well, like, like I just said, I think the reason why right now it's such a great strategy or a great option to look at is we have… You- you know, Fannie Mae insures the majority of mortgages in America- Yeah conforming mortgages in America. And when you have an entity like Fannie Mae and the government and- Mm-hmm … other big investment companies saying that the rate hike that we have seen in the mortgage industry is temporary, it's because inflation's out of control. Yeah. And, and so, and you know right now. So it's almost like we have a crystal ball, Christian- Mm-hmm … where the Fed, we know the Fed is raising the fed rate a lot this year. Yes. They're slated to raise it another point to point and a half before the end of 2022.

Christian: [4:43] Which is crazy, 'cause we're near the end of 2022

Dan: [4:45] already. We're almost there, right? And so, but that's a good thing, because I'm gonna put up a graphic right now. So this is another reason why I'm, I'm so glad we're doing this and we're recording this. Yep. But if you follow inflation over the last 50, 60 years, every time the inflation rate in America goes up, so do mortgage rates. Mm-hmm. And every time the inflation rate comes down, so do mortgage rates. And so what is the Fed doing right now? They're trying to bring inflation back down. Yep. Well, what happens when inflation comes down? Mortgage rates come down. Mortgage rates drop. Yeah. Yeah. So they're saying that this'll happen Q2, Q3 of 2023, which is about a half a year to a year from now. In comes this two-year money saving strategy. So the 2-1 buydown is a program where for the first year… So let's just assume that, I'm using assumptions, these are not rate quotes, these are just ranges. But let's just say, let's assume that 30-year fixed rates right now are 6.75. Okay. That, which is a real accurate kind of range right now. For the first year on a 2-1 buydown, you take two percentage points off that. Mm. So it's 4.75. So the money, we're gonna get to some of the actual numbers here in a minute, but it's thousands of dollars in savings off of your monthly payment- Yeah … over, over the, the scope of a year. The second year it drops down a point, so instead of 6.75, it's now 5.75 for the second year, and then from year three on until the loan is paid off, it's the, the qual rate, which is 6.75. These are fully amortized. It's not an adjustable. You just get a discount for the first two years.

Christian: [6:13] Yeah. So to recap, basically what a 2-1 buydown is, it's a good, I like how you called it earlier, a temporary buydown. Mm-hmm. The first year you're temporarily buying your interest rate down two percentage points. Yep. So from, if it's 6.75, if that's what you got, you'd be going down to 4.75 for the first year. The second year, the one part, would be one percentage point- Yep … lower, so 5.75. Yep. And your monthly payment's gonna change quite a bit.

Dan: [6:38] Yeah.

Christian: [6:38] Let's give a couple of quick examples. So let's say you're buying an $800,000 property- Okay with just a 5% down payment. That's $40,000, 5%. Yep. So your loan amount's gonna be about $760,000. Yeah. Let's, let's give, we're, uh, if you're watching the video, you're gonna see this on the screen- Yeah … um, where you can actually see these, but let's go over it- Yeah … verbally as well- Yeah … for those listening on the podcast.

Dan: [7:01] You'll see the breakdown. Yeah. So $800,000 purchase price, 5% down brings you to a $760,000 loan amount. Principal and interest, your principal and interest payment is $4,929. This is at 6.75% on a 30-year fix. Mm-hmm. Mm-hmm. Let's say $75 for homeowner's insurance. Let's say 625 for property taxes, and let's say $209 for PMI. These are not quotes. These are just estimates, okay?

Christian: [7:26] These are, these are, these are very strong estimates.

Dan: [7:28] Yeah. You add all that up, your total monthly payment is $5,838 a month to buy an $800,000 house with 5% down.

Christian: [7:35] So rounding, 5,800

Dan: [7:37] essentially. 5,800-ish. For an $800,000 purchase with 5% down today.

Christian: [7:41] Yes. Yeah. Now, let's say 2-1 buydown, the first year you're buying it down two percentage points, so now instead of 6.75, you're at 4.75. Yeah. What's that do to the

Dan: [7:50] payment? It's a savings of $985 a month.

Christian: [7:53] Wow.

Dan: [7:53] Almost a G.

Christian: [7:54] Wow.

Dan: [7:54] For the first year.

Christian: [7:56] Dang.

Dan: [7:56] And then almost $600 for the second year.

Christian: [7:58] So what's that payment look like? So from 5,830 that first year.

Dan: [8:03] So the savings over the first year is about $1,000, which would bring your principal, your total monthly payment down to about $4,873 a month.

Christian: [8:10] Wow. Wow. That's a big deal for that first year. For the first year. Now, the second year- Yeah … you're only dropping one percentage point. You're saving, what'd you say, 600 and something bucks a month?

Dan: [8:19] Yeah, about s- approximately 600. Yeah. Yeah. So you, you're going from 5838, uh, to about 5,238 a month? Nice. 5,200-ish a month.

Christian: [8:29] Mm-hmm. Yeah. Yeah. So these savings really, really do add up. Um, now just so you know, I, we've talked to Dan before, so I know that you still have to qualify at the normal- Yeah higher interest rate, but you get to enjoy that first year 2% buy down rate.

Dan: [8:47] Yeah, let's talk about that real quick- Yeah … because there's a lot of skeptics out there, and, and I, I spent a lot of time. I was the one that got into the mortgage industry in '08 after and as things were collapsing from bad mortgages. So I didn't participate in that, but I was a… We experienced it- Yeah … a lot. Yeah. I mean, I was the one going to take a loan application from 2008 to 2012, and we had bullseyes on our chest and our back. We were the bad guys. Mm-hmm. The mortgage guys were the bad guys. "No, hey, wait, don't, don't shoot me. I was a college professor. I was a good guy during the times." I was also a victim- Yeah, yeah … you know, during those times too. Exactly. So what I'm saying with this and what Christian just said is you have to understand that this is not a program to get people to qualify for more house than they can afford.

Christian: [9:25] No.

Dan: [9:25] You're right. You have to qualify today's going 30-year fixed. It's just a savings benefit-

Christian: [9:31] Mm-hmm … Dan: for the first two years if you were to deploy this. Yeah. And the, the thing that's cool about this is when and if, most likely when, inflation does get tampered down and interest- Yeah … rates do drop, you could potentially, at that point, refinance your loan and get that lower rate.

Dan: [9:48] Yeah.

Christian: [9:49] Which is a big deal.

Dan: [9:49] Yeah. And that's really what I'm doing right now with clients, is I'm showing them today's 30-year fixed rates.

Christian: [9:55] Mm-hmm.

Dan: [9:56] If the seller, if you were able to negotiate with the seller a 3% credit approximately to deploy the 2-1 strategy- Here's what your payment would look like at 4.75 and then at 5.75. And then I also make a fourth column that shows in 2023 or when, as Fannie Mae is saying, rates drop- Mm-hmm … what a 4.5 or a 4.25 30-year fixed would look like on that same property. But you have to also remember, you're paying down principal over the next two years, too. Yep. So you'll owe less in two years. So, um, this is a great time. It's a… I'm telling home buyers right now, it's a great time to buy real estate because for the first time in, like, three or four years, Christian, you're not having to offer 100, 200, 300 over ask price. Exactly. Right? Yeah. Yeah, the rates are higher, but there's a strategy for that. Exactly. But then there's relief coming in the future.

Christian: [10:43] Yep.

Dan: [10:44] All right, let's, let's go over a little bit

Christian: [10:45] higher purchase price amount. So let's say… Well, before we do that, let's kinda talk about some somewhat breaking news. Yeah. And that is that conforming loan limits for King, Snohomish, and Pierce Counties for 2023 are going to be increased yet again. They're bumping it up almost $100,000, which is a big deal. Um- Currently, in 2022, the, the conforming loan rates are, is 891,250, right?

Dan: [11:12] Yeah. 891,250. So the current, yes, the current 2022-

Christian: [11:15] Mm-hmm … Dan: high balance or conforming loan limits- Yes … Dan: 891,250, and that's for the high, so they call them the, the, uh, higher cost counties, so Pierce, King, and Snohomish Counties in Washington State. Yep. Yeah. And for 2023, they're going up. Get this. What? 1,000,020.

Dan: [11:33] Or excuse me, excuse me, excuse me, 1,000,020 is what you can qualify for. 2023 is 970,800.

Christian: [11:39] 970,800.

Dan: [11:41] Yeah. 1,000,020 is the example that we're gonna show in a minute- Yes … that you can buy 1,000,020 with 5% down and qualify for a conforming loan.

Christian: [11:47] Yeah.

Dan: [11:48] Insane.

Christian: [11:48] Yeah, so let's go over those numbers. Yeah. So you, you prepped yourself.

Dan: [11:51] Yeah. Yeah,

Christian: [11:52] yeah. So with 5% down, getting a loan balance of 970,800, your purchase price is just over a million, so $1,020,000. Yeah. You could buy property for 1,020,000 with just- Yeah … 5% down, which is only $51,000.

Dan: [12:08] Well, and normally too, what happens when the FHFA, which is not FHA, but the FHFA raises these conforming loan limits, so does VA and FHA follow suit. Yep. So you could almost even do it with 3.5% down.

Christian: [12:22] That's crazy. It's

Dan: [12:22] crazy.

Christian: [12:23] Yeah. So let's go over the, the 2-1 buydown- Mm-hmm … on these rates

Dan: [12:26] now. Yep. So a 2-1 buydown, if you're looking to purchase, for example, so let's just recap, 'cause I kind of, I want people to understand me. The new conforming loan limits are not a thousand, 1,000,020, okay? Yep. The new 2023 estimated high balance loan limit's 970,800, which is an increase from 891,250, okay? Mm-hmm. So what this means to the buyer is it keeps you out of jumbo land. It keeps you from having to put 20% down with a jumbo mortgage, which are more difficult to qualify for. So this means that you as a buyer, for some buyer in Seattle, could buy a home priced at 1,000,020 with 5% down and still stay out of jumbo territory, which is great.

Christian: [13:05] Yeah.

Dan: [13:06] So yeah, that sounds cool, but what does it cost me a month?

Christian: [13:10] Exactly.

Dan: [13:10] So if you were to buy a home priced at 1,000,020 and put 5% down, so your loan amount was 970,800, the new projected 2023 max conforming loan limits, your total monthly payment, including taxes and insurance and PMI, these are just estimates, $7,464 a month.

Christian: [13:28] Okay.

Dan: [13:28] But if you were to deploy a 2-1 buydown strategy, you're gonna save twen- $1,233 a month. So you wanna know- For that first year … your new payment? Wow. For the first year, yeah.

Christian: [13:39] Wow.

Dan: [13:39] So 7,464. Your payment for the first year is $6,231.

Christian: [13:45] Dang. That's a big savings. Big savings. Yeah. Big savings. Yeah. And then the second year, you're dropping your rate by 1%, which is gonna be what?

Dan: [13:52] Yeah, you're gonna be at- 200-ish

Christian: [13:53] savings?

Dan: [13:54] Yeah. You're gonna be at right around 700, so $6,740 a month.

Christian: [14:00] Wow. So this 2-1 buydown strategy is very helpful for buyers when purchasing right now. Um, I think a lot of… The main question that people are wondering is what's the catch? Yeah. How do you do this? It must cost a lot of money. I don't wanna pay extra money for this. Yeah. So what's the strategy behind

Dan: [14:19] that? Yeah. Let's dig into that because it's, it's, it's important to understand this. So as a buyer, it's called, if you actually look at the definition of this, it's called a seller-paid-

Christian: [14:28] Mm-hmm … Dan: temporary 2-1 buydown. And I love two parts of that. Seller-paid, the seller must pay the cost for this. The other thing is it's temporary. Yep. Okay? So I love the disclosure there. This is not, we're not trying to mislead you here. It is temporary. It's two years. You're gonna break for two years. Yep. The other part of it is the seller needs to participate in applying a credit, which we weren't able to see over the last- No three, four, five years. You were, you were paying $200,000 over the asking price- Yeah … waiving every contingency, giving up three goats and a pig- … in order to get the house. And chickens. And chickens. And your kids. Yeah. We actually got numerous, numerous offers accepted by accepting the seller's chickens- Yep 'cause they didn't wanna move them.

Dan: [15:04] Yep,

Christian: [15:04] yep. Like, that's funny that that happened more than once. Yeah, yeah. Uh, but- In

Dan: [15:07] Seattle.

Christian: [15:08] I- they weren't always in Seattle either. That's right. In Seattle. But it was. But not always Seattle. But

Dan: [15:12] yes. Take the chickens and you got the home.

Christian: [15:13] Yeah, exactly. It, it was pretty funny.

Dan: [15:15] Well, the, so the catch, the seller. Yes. So the seller's gonna, gonna have to give a 3% credit. Now, the standard is 3%, but it's not always 3%. So what I'm gonna do here, I'm gonna pull up a calculator, and I give this to our real estate agents. Mm-hmm. So when you're negotiating, I mean, if you can negotiate a full 3%, awesome, but let's say there's another buyer, which yours, there's, there are multiple offers now. Yeah. And they're asking for a 3% credit. Mm-hmm. But you're only asking for- The exact

Christian: [15:41] amount

Dan: [15:41] that we need … the exact amount, which is, like, 2.58%. Yep. Boom. Advantage you- Yep … because you did your due diligence in understanding that it doesn't necessarily take a full three. Yeah. So one, we have to get the seller to participate. Two, there is a cost for this. Mm-hmm. It's approximately 3% or less, and the cost is, it's really simple. How do you come up with these fees? It's not a fee. What you're, the seller is doing is just prepaying interest for two years.

Christian: [16:05] Yeah.

Dan: [16:05] So they're taking the difference between that 6%, the 6.75% 30-year fixed- Mm-hmm and the 4.75% for the first year, and they subtract the difference in interest.

Christian: [16:15] Yeah.

Dan: [16:16] And that's it. Yeah. And time, multiply it by 12. The seller's paying that for year one. We're gonna do the same for year two. Yep. And then that's what the seller's paying. Now, here's the really cool thing about this. Let's say Fannie Mae is right, Dan Keller's right, 'cause I listen to Fannie Mae. And rates drop by Q2 of next year, and you haven't even been in the mortgage for a full year, and you've got $21,000 of this seller credit that you haven't used yet. Mm-hmm. That credit to buydown, to participate in the 2-1 buydown program, remains in an escrow account with the lender. So if you refinance or pay off your mortgage before that is used, it's your money. You get a refund.

Christian: [16:53] Yeah. That's a

Dan: [16:54] huge deal.

Christian: [16:55] It's big. Huge deal. Yeah. 'Cause normally with a closing cost credit, if you don't use it, you lose it.

Dan: [17:00] Yeah.

Christian: [17:01] And y- you got one shot to use it. You don't get to keep- Yeah … benefiting from it- Yep … for two years.

Dan: [17:05] Yep.

Christian: [17:06] So if rates do go down, and you still have some time left on your two-year 2-1 buydown-

Dan: [17:11] Yep

Christian: [17:12] you get to, you reuse that money. Yeah. You can use it either towards paying your closing costs or- You

Dan: [17:16] can call up Christian and I, we can go out and celebrate. We like to go to Mariner games. Yes. And you can take us out and celebrate with your extra- … with your extra cash.

Christian: [17:24] All right, so real-life example, we actually just last night, uh, negotiated a 2-1 buydown successfully. We got $65,000 off the asking price, plus a 3% credit. They're not gonna need that full 3%, so, uh, because the 2-1 buydown- Yep … doesn't need the whole 3%. So they're actually also gonna be u- able to use that remaining, whatever, half a point-

Dan: [17:47] Yeah … Speaker: to pay down some of their closing costs. So it's a really, really big deal. Yep. In this negotiation, sellers also understand, in this market right now, that this is a big deal for buyers. So they're starting to preemptively add this to their listing now. Um, and that's what we're starting to do- Yeah … with some of our listings as well, is offer this upfront to a buyer to make it more appealing, our house more appealing than the other seven that we're competing against- Yeah in the same neighborhood and price. Because we're st- finally starting to see some inventory. Yeah. So we gotta stand out, and this is a good strategy for sellers as well. You wanna talk about that real quick?

Christian: [18:22] Sure.

Dan: [18:23] I think it's really important. And so I did a worksheet the other day, and it was right, it was priced at right about, um, a million dollars. Million-dollar listing. And what was profound is when buyers and sellers negotiate in the past, really the only common ground they have is reduced price. Yep. You know? Absolutely. And every buyer's looking for a deal, right? Yep. Someone to lowball. If you deployed a 3% credit, in order to get on that million-dollar listing, to get the, the price down where the payment was with this 2-1 buydown, you would've had to drop the purchase price by over $100,000. And the sellers aren't gonna do that right now. Yeah. It's not that bad. No. So what it did is it put more money, if you were able to explain this, because I teach my clients this. Buyers buy homes not off a price, it's off a payment. Yep. Unless they're paying all cash for the home. So if buyers buy homes for payment, and sellers sell homes for price, this, this 2-1 buydown strategy is a massive win-win. Preserves pr- uh, the value equity, I call it, or value integrity in our communities. Mm-hmm. It's a win for the seller, and it's a win for the buyer, too. So instead of dropping by 100 grand, you give a 20, $30,000 credit, boom. You just put $60,000 more in your seller's pocket. Yep. The buyer got the payment that they want and the credit that they need.

Christian: [19:39] Yeah.

Dan: [19:39] It's

Christian: [19:39] all

Dan: [19:39] good.

Christian: [19:40] Yeah. So let's describe how this 2-1 buydown is different than the traditional buying down your interest rate on a normal 30-year fixed loan. Yeah. How is this different? Really- What's the big difference? … Dan: really great question. So that would be called a permanent buydown. Okay. So that's where you're just taking that 3% credit like you just negotiated for your clients, for example- Yep and saying, "Hey, you can use this to buy down your interest rate." Well, that interest rate's purchased, it's bought down for 30 years. So the reason why this is such a… And, and again, I'm presenting that same exact option to my clients as well, but the reason why I'm pro 2-1 buydown right now is because we've got evidence, we've got data from the Fed and from Fannie Mae, who insures the majority of mortgages in America, that mortgage rates will come down in the next year to two, year or two. Mm-hmm. Okay? So knowing that and knowing this isn't a long-term pain we're gonna experience, there's n- It's a better use of your money doing the short-term 2-1 buydown versus a permanent for 30 years knowing that you probably won't be in that mortgage for more than a year or two. Yeah,

Dan: [20:41] yeah. Which is great advice for people that are first-time

Christian: [20:45] buyers or repeat buyers- Yeah that are in this market right now looking to buy. Because it really does make a big difference, um, in their monthly payment, but also in their long-term strategy. Yeah, yeah. Um, and, and if you can buy right now with the payments where they are and do a 2-1 buydown- Yep … you're going to be enjoying that lower interest rate for the first year- Yeah for the 2% lower. 1% lower the second year. Yeah. And at some point in there, if rates do go down like everyone is predicting, we're not guaranteeing it- Yeah … but like they are predicting, then you can refinance at that point, which is a huge, huge deal because you're buying in today's somewhat depressed pricing market for houses, where it's not competitive all the time, and you're not paying 100,000 or 200 or 300,000 over the asking price. And instead, you're buying it at that depressed-

Dan: [21:34] Yeah … Speaker: depressed pricing. Yep.

Christian: [21:36] And you're able to keep your contingencies in place and protect yourself as a buyer way more.

Dan: [21:41] Yeah, yeah.

Christian: [21:41] Which is the beauty of buying in this market and taking advantage of this- Yeah … two-one buy

Dan: [21:45] down. Yeah. It's, it's huge. Well, and then speaking of options, and let's add one more to that. So you've got the two-one, you've got the permanent. Yep. These are people that are cautious, which most of my clients are very cautious on payment, okay? Because rates are high. Mm-hmm. Ah, payment's really high. Let's say we have clients that are selling a home, and you're still able to negotiate a 3% credit. Payment might not be important to them 'cause they're putting so much money down on the home. Money is. Cool. So if money, cash out of pocket, is important to you- Mm-hmm … not necessarily payment, take the 3% credit to cover your closing costs or to reduce the price.

Christian: [22:17] Yeah.

Dan: [22:18] So the, it's just, again, I'm not bo- this is your only option. No. There are multiple options. Yeah. But, again, I think, you know, kind of a, a, an off-script plug here is why it's so important you're working with a pro right now- Totally … to understand these options because every buyer is different.

Christian: [22:34] Yeah, 100%. And this, uh, will go into another plug. This is why I love working with Dan and his team when it comes to buying. Um, this is why we've done, almost every month for the last seven, eight years, our home buyer class- Yeah … which is called Beers and Home Buying. Beersandhomebuying.com (opens in a new tab). Beer, like the drink, and homebuying.com. Uh, they're free. They're held all over the area, uh, every single month, other than December, 'cause no one shows up in December. Um, we have this class, and it's, it's awesome. Uh, it's only an hour long. It's so laid back. There's free food generally. Not all venues have food, but generally food. Free beer, for sure. Um, and we just kinda give you the basics, and this is what sets our clients really apart- Yeah … um, and why we love working with Dan and, and his team because they really are on the same page as us in terms of negotiating, in terms of educating, making sure that you as a buyer are fully informed- Yeah of what's going on in the market, what you can actually afford, how to structure and strategize an offer, um, and to make it make sense for you. So if you are interested in attending our class, I'm sure you've heard it three times now, but I'm gonna tell you again, beersandhomebuying.com (opens in a new tab). All right. Let's kind of go over some next level, more nitty-gritty questions. Mm-hmm. Uh, seller credits, we've talked about that a lot. Mm-hmm. What are the maximum amount that you can get in a credit-

Dan: [24:01] Yeah … Speaker: from, from sellers? That's a really good question, and then this is where I'm seeing lenders and real estate agents really messing up right now. And

Christian: [24:08] I… The reason I'm asking this is because I have seen this- Yeah uh, posted on social media- Yeah … and I'm like, "I don't think that's correct." Yeah. You're kind of misleading people right now.

Dan: [24:17] Yeah, yeah, misleading or leaving money on the table, right? That too, yeah. And so here's the thing. If you are a buyer, and you're putting down 10% or more-

Christian: [24:26] Mm-hmm … Dan: with a conforming, like a conventional loan- Yep you can negotiate up to 6%- That's

Dan: [24:32] huge … seller credit.

Christian: [24:33] Huge.

Dan: [24:33] Yeah. And it's, again, huge for the seller. Instead of dropping the price by a hundred grand- Mm-hmm … 6% credit, 40, 50, 60 grand gets the job done. And

Christian: [24:41] what can you do with that credit? Why is that-

Dan: [24:43] Yeah … Speaker: such a big deal? Yeah, so 2-1 buydown.

Christian: [24:46] Mm-hmm.

Dan: [24:46] Three… Which we don't wanna… No, I don't wanna go on a- … tangent, tangent, but there's another program called the 3-2-1 buydown, which gives you three years. Yeah. It costs more than 3%- Yep … to do it. Yeah. So you don't get to deploy that strategy if you're putting down less than 10%, where you're capped at a 3%- Mm-hmm max seller or broker credit. So 10% down or greater for conforming, or conventional, or jumbo loans- Mm-hmm … you can go up to 6%, okay? Okay. Now, under 10% with a conventional loan, you're capped at 3%. With FHA, it's 6%. With VA, it's 4%.

Christian: [25:22] Interesting.

Dan: [25:22] And these are credits from the seller to- Yes … be applied toward closing costs- Whatever you want 2-1 buydown. Yeah. Whatever you'd like.

Christian: [25:27] Yep. Yeah. Exactly. Okay. Uh, let's talk different loan, um, types. So, uh, can you do a 2-1 buydown for a 15-year fixed? We were kind of talking 30-year fixed. Yep. But can you do it on a 15-year fixed loan?

Dan: [25:41] Great questions. Yeah. So let's talk about wh- which loans you can, you cannot use this deploy- Yes strategy on. All right. So a 30-year fixed, yes. Mm-hmm. Um, there are a couple of 30-year fixed programs like the HU- the, the, the HUD 184 loan for Native Americans. Um, they don't offer a 2-1 buydown strategy for that program. 15-year fixed, yes. Mm-hmm. So as long- Good … as it's conforming or jumbo, yes, you can deploy a 2-1-

Christian: [26:06] Mm-hmm

Dan: [26:07] uh, temp buydown strategy there. Adjustable rate mortgages, no.

Christian: [26:12] Got

Dan: [26:12] it. So adjustable rate mortgages, you're already getting the reduced rate. It's already a short-term loan. Yep. So no go on that one.

Christian: [26:17] So an adjustable rate is, you've heard them called like a 7-1 ARM- Yeah … or a 10-1 or a 5-1. Yeah. Like, there's numerous different- Yeah iterations of this. Yeah. But, so you cannot do a 2-1 buydown on those? Correct. Got it. Okay. Good to know. Um- What questions, what other questions should buyers be asking about this? What else have we not covered- Yeah, let's, yeah … that Ray, they really need to know

Dan: [26:41] and understand? I love playing devil's advocate. What's the catch- Mm-hmm … and what's the cons?

Christian: [26:44] Exactly.

Dan: [26:45] So, you know, y'all, a lot of times you hear realtors, and this is why I love working with you, I've watched you literally, I've been with you with clients, or I've been on the phone with you and literally watched you, listened to you talk people out of buying homes. A lot, yes. A lot. You know, and you are spot on. A couple even, especially now as the market's transitioning, spot on about foundations, spot on about water issues- Mm-hmm … spot on about neighboring properties, stuff like that. Yep. And so, so many time realtors and lenders are in sell mode. They just wanna sell, sell, sell, sell, sell. Yep. And they wanna pitch. We're not pitching. This is not to pitch the 21 Buyout. It's to- Education … bring about awareness and education. Yes. I like to talk about the negative side. So what are the cons? What do you need to know about this? So the cons to this program, trust me, I've tried to look them up. It's really comes down to disclosure.

Christian: [27:31] Mm-hmm.

Dan: [27:31] As long as you, the consumer, know your options. Here's a standard 30-year fixed rate, for example, is 6.75. No closing cost credit. Here's your payment. Here, if you were to get a closing cost credit, here's how it compares apples to apples. So it's just gonna reduce your, your closing costs. Deploy a 2-1 buydown strategy instead of not having closing costs, 2-1 buydown strategy to lower your payment for two years. Permanent buydown strategy, reduced sales price.

Christian: [28:00] Mm-hmm.

Dan: [28:00] As long as you're looking at all five options, the, the cons or the catch is there is a cost for the program-

Christian: [28:07] Yep … Dan: and the seller has to pay it. Yeah. Those are the two that I've been able to come up with. But I think a lot of it just comes through disclosure and understanding. So if a buyer can't get the seller to pay it, can they… Is there, like, an additional fee that they could do? Is it just not as good a deal? Is it just doesn't make sense- Yeah or is it just not allowed?

Dan: [28:25] It really just doesn't make sense, but you can. Our, our, New American Funding does have a lender paid version, which you can. It's a higher rate. It really doesn't make sense. Yeah. So here, here's the thing. What… All you're doing is you're prepaying interest. So what I would do is just, it's, it's your money either, either way. Mm-hmm. If the seller's not paying for it, it's your money to participate in it. So it doesn't really make sense. Yeah. Yeah.

Christian: [28:44] Yeah. Cool. All right. That is all I got. It's a good one. This has been awesome, Dan. I really appreciate- Yeah … Dan: all of your, uh, insight, knowledge, and, and really ability to explain things that are somewhat complicated. Yeah. Especially on audio format only. Yeah. Um, again, we did record this with video, so if you wanna see the numbers, if you're a visual person, go and click in the show notes. You can click to watch the YouTube video and see those numbers on the screen. Um, but that's it for this episode of the Awesome in Seattle podcast. If at all you're interested in buying a home, just go to one of our classes, beersandhomebuying.com (opens in a new tab). Every single month, other than December, we hold them. Uh, it's totally free, very laid back, no pressure whatsoever, and you will walk away after that hour-long class of having a free beer and learning how to buy a house. You'll understand kind of how, what it's gonna take to buy a house. And we'll even meet one-on-one with you at a later date, uh, that works for your schedule, and really just show you and help you build out that roadmap. "Hey, if we did wanna buy, what does that look like? We're not ready for a year or two or three. How do we do that in one, two, or three years?" Or whatever that timeframe is for you. Uh, and we will just sit with you and work that out one-on-one with you. So that's the beauty of kinda working with our team here at the Awesome and Awesome Group. Working with such a well-respected and good lender like Dan Keller, um, and, and that's… Yeah. Thank you so much. I really appreciate your time, Dan.

Dan: [30:07] Yeah. This was good. Yeah. A lot of good information here.

Christian: [30:09] All right. So that's it for this week on the Awesome in Seattle podcast. We will see you in two weeks, like always. See ya.