When mortgage rates aren’t where you want them to be, it can be tempting to wait.
But rates are only one part of the equation.
Home prices, inventory, monthly payment, upfront costs, and your own goals all play a role in deciding when the time is right to buy. And since no one can predict exactly where rates or home prices are headed, it helps to look at the loan options available to you today.
The right strategy will look different for every homebuyer. Taking the time to compare the numbers and understand how different financing options could affect your monthly payment and upfront costs can give you a much clearer picture of what may work for you.
Here are a few options to consider as you weigh your next move.
Temporary Buydowns: Lower Payments to Start
For some homebuyers, the monthly mortgage payment can be one of the biggest factors when deciding if the timing is right to buy.
A temporary buydown can help ease some of the pressure of the monthly principal and interest payment for a set period at the beginning of the loan. Depending on the loan program and transaction, the buydown may be funded by a seller, builder, or lender.
Common structures include:
- 1-0 Buydown – Reduced monthly payment for the first year
- 2-1 Buydown – Reduced monthly payment for the first two years
- 3-2-1 Buydown – Reduced monthly payment for the first three years
One important thing to know: the mortgage note rate does not change. Instead, buydown funds are used to cover a portion of the monthly mortgage payment for a limited time. As those funds step down, the borrower’s payment increases based on the set terms until it reaches the full principal and interest payment.
For buyers who plan for and are comfortable with the full monthly mortgage payment once the buydown period ends, the lower starting payment can provide a little more breathing room for moving costs, repairs, furnishings, or other expenses that often come with a new home.
Your Down Payment: Finding The Right Balance
Your down payment is about more than just how much cash you bring to closing. It can also affect how much you borrow, what your monthly payment looks like, and whether mortgage insurance comes into play.
Putting more money down can help lower the loan amount and monthly principal and interest payment, but that does not always mean more is better.
For some buyers, it may make more sense to keep some cash available for closing costs, moving expenses, updates to the home, or just a little extra cushion after closing. Depending on the loan program, a lower down payment may still be an option.
This is where it helps to run the numbers a few different ways. Looking at both the upfront cost and the monthly payment can give you a better sense of what works well for your budget and overall goals.
Your Loan Options: Looking Beyond The Rate.
Different loan programs can come with different down payment requirements, mortgage insurance, fees, and qualification guidelines. All of those factors can impact how much you need at closing and what your monthly payment looks like.
That is why the right loan option can look different for every buyer. Two people buying homes at the same price point may have very different financing strategies depending on their budget, goals, and overall financial picture.
Taking the time to compare your loan options can help you see what works best for your situation today, while also keeping your longer-term plans in mind.
It is not always about finding the lowest rate. It is about finding the financing option that makes the most sense for you.
The Full Picture
A temporary buydown may make the first few years more manageable, but the full monthly payment still needs to fit your budget. In many cases, borrowers qualify based on the note-rate payment, not the temporarily reduced amount.
Before deciding to wait, work with a lender who has the tools and technology to help you compare different scenarios. A temporary buydown, different down payment approach, or another loan program may change how the numbers look; and help you choose a strategy that fits both your budget today and your longer-term goals.
READY TO TAKE THE NEXT STEP?
C21 Redwood partners with Atlantic Coast Mortgage to provide clients, friends, and family with a clear, supportive mortgage experience, guiding you every step of the way, from “What’s Next?” to “Welcome Home!”
C21 Redwood partners with Atlantic Coast Mortgage to offer clients, friends, and family an exceptional mortgage experience that helps guide them through every step from “What’s Next?” to “Welcome Home!”
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* Eligibility for all applicants cannot be guaranteed. Atlantic Coast Mortgage (“ACM”) and Century21 Redwood Realty are separate entities and are not affiliated. Consumers are not obligated to use either or both entities to obtain financing or purchase a property.
