New strategy to buy down rate appeals more

Mortgage broker: Liz Bayer, ProMortgage.

Property type: Single-family home in Novato.

Appraised value: $1.525 million.

Loan amount: $1.173 million.

Loan type: 30-year fixed.

Rate: 6.75%.

APR: 6.997%.

Backstory: Many of the lenders in the industry have rolled out a “Temporary Rate Buy Down” product which has some short-term payment relief for buyers which is one of ProMortgage’s many loan product offerings.

However, the downside is that the borrower or seller has to finance this buy down directly out of pocket.

I was approached by a new client who had heard about this but was not thrilled by the out-of-pocket outlay, so I suggested he consider a new loan product that had rolled out recently, where the “cost” to buy the rate down was actually financed into the loan amount rather than having to pay the expense out of pocket at closing.

In our transaction, the loan amount was $1,143,750, which represented 75% of the contract price. The “cost” to buy “Many of the lenders in the industry have rolled out a ‘Temporary Rate Buy Down’ product which has some short-term payment relief for buyers which is one of ProMortgage’s many loan product offerings. However, the downside is that the borrower or seller has to finance this buy down directly out of pocket.” down the rate was at $13,000, and we rolled another $17,000 toward other closing costs into the loan amount as well, which financed to a new loan amount of $1.173 million.

If the borrower had stayed with the original loan and the rate of 6.750%, his “principal plus interest” payment would have been $7,418.34 per month, plus over $30,000 to use the temporary rate buy down for a lower payment.

That didn’t make sense to me, since the payment on financing the cost for a permanent rate reduction would only be $7,613.07 — a higher monthly payment of

$194.73, but more money to use to cover move-in costs, furnishings and some updates on his new home.

Additionally, my client was self-employed and was looking for an alternative to providing tax returns that had huge write-offs, so we opted to utilize this lender’s 24-month bank statement that does not require tax returns to qualify for the income.

My client was thrilled with this concept and liked also the security that this was a permanent rate reduction rather than just a temporary rate reduction, especially during these volatile economic times.