How Can Sellers Benefit from a 2-1 Buydown?
WHAT IS A "SELLER-PAID 2-1 BUYDOWN"?
A "Seller-Paid 2-1 Buydown" is where you pay a fee at the closing to reduce the interest rate on the buyer's mortgage by 2% in year 1 and 1% in year 2. This temporarily lowers the buyer's monthly payment and makes the home more affordable for them.
A "3-2-1 Buydown" can sometimes be used, although a 2-1 Buydown is more common. A 3-2-1 buydown reduces the interest rate on the buyer's mortgage by 3% in year 1, 2% in year 2, and 1% in year 3.
WHAT ARE THE BENEFITS OF A 2-1 BUYDOWN?
A 2-1 Buydown reduces the buyer's interest rate and monthly payment during the first few years of homeownership, making the home more affordable for them. It has a much greater impact on the buyer's monthly payment than reducing the list price of the home. This could be a great negotiating tool because a greater percentage of homes listed for sale in today's market are seeing price reductions. A 2-1 buydown makes your house more affordable to a wider range of buyers who may have otherwise been priced out of the market.
HOW DOES A 2-1 BUYDOWN GIVE YOU A COMPETITIVE ADVANTAGE?
Offering to pay for a 2-1 buydown could give your deal a competitive advantage vs. other homes listed for sale in today's changing market. That's because interest rates are elevated, creating an affordability crisis for many potential buyers. A 2-1 buydown could also save you the aggravation and financial loss of having to significantly reduce your list price to compete with other homes that may be listed for a lower price. Let me know if you'd like me to run some numbers to see the specific impact that this strategy could make in your situation!
ARE THERE ANY TAX BENEFITS?
Sellers can deduct seller-paid buydowns paid on behalf of the buyer against your capital gain when you sell the property. The seller-paid buydown is considered a "cost of sale." Meanwhile, the seller-paid buydown is also tax-deductible to the buyer if the buyer itemizes their tax deductions. Please see IRS Publication 936 for more details.
The best way to gain a competitive advantage in today's changing market is to work with the right mortgage professional who can help you think through your options. Contact me so we can get started!
Source: Momentifi