Real Estate Quick Tips: Buy Down

In an era of rising home prices and fluctuating interest rates, achieving homeownership can feel like a moving target. In this episode of Real Estate Quick Tips, veteran agent Larry Refsland breaks down one of the most effective tools for increasing affordability: the Buy Down.

Whether you are a first-time buyer looking to lower your monthly payments or a seller wanting to make your listing more attractive, understanding how to leverage upfront costs to reduce interest rates is a game-changer. Larry draws on over four decades of experience to explain how this process works, the potential tax benefits, and how to include it in your next negotiation.

And now, here’s another real estate quick tip with Larry Refsland. Contact Larry at LarryRadio.com.

Larry Refsland: Affordability. That’s a word that is top of mind in today’s economy. This is Larry Refsland with your quick tip for today.

Everyone knows that home prices have increased drastically over the last several years. Some say that income has not kept pace with home prices, making it more difficult to buy in this market. Plus, interest rate fluctuations have contributed to the affordability crisis. In my more than four decades of helping people afford a home in their budget, I’ve learned a thing or two about addressing this problem.

One tool that is available is what is known as a buy down. In this case, a home buyer can pay—or ask the seller to pay—an upfront amount that the lender will use to lower the interest rate somewhat. The lower the rate, the lower the monthly payment.

By using this method, your rate could be reduced by as much as 1%. So, if the current rate is 6%, you could buy down the rate to 5% or somewhere in between. The typical buy down cost is 1% of the loan amount for every quarter of a percent in interest. A 1% reduction on a $200,000 mortgage would save the buyer about $150 a month.

The upfront cost could also be used as a tax deduction, as it is considered prepaid interest. Some loan programs, such as FHA or VA loans, allow the seller to pay up to 6% of the sales price towards the buyer's closing costs, including buy downs. These terms should be made part of the negotiation process when making an offer on a house.

That’s your quick tip of the day! If you have questions about real estate, contact me by going to LarryRadio.com and submit your questions there.

Larry is a licensed real estate agent with Better Homes and Gardens First Choice Realty, license number 4090771. You’ve been listening to Real Estate Quick Tips with Larry Refsland. Contact Larry today at LarryRadio.com.