Mortgage rates are rapidly rising as the federal reserve tightens monetary policy. For lenders, this means coming up with new methods of generating business, such as launching programs that encourage borrowers to ‘marry the house and date the rate.’ During this transition period, homebuyers face significant doubt because affordability issues have put purchasing significantly out of reach for many.
The typical homebuyer would have faced a $1,296 monthly payment based on the September 2021 median home price and 30-year fixed rate, assuming a 20% down payment. Given today’s 7% interest rate, the median home price would have to fall to around $235,000, a 45% drop, for this year’s buyer to have the same monthly payment as last year.
In response to the increased affordability challenges for homebuyers, lenders have implemented programs that reduce closing costs for future refinances and offer seller concessions, such as 2-1 rate buydowns, to attract more buyers. Recently, a 2-1 rate buydown has been a popular option for buyers.
The mortgage rate will be 2% lower for the first year of the loan and 1% lower for the second year with this type of buydown. Borrowers pay the full rate for the third and subsequent years. This initially keeps the mortgage rate down, and borrowers can refinance to a lower rate when rates fall.
As interest rates rise and housing prices fall in 2023, sellers will want to maximize their chances of doing business with a motivated buyer who can obtain a lower-than-market rate with seller participation. As mortgage rates are expected to remain volatile in the near term due to the federal reserve’s continued quantitative tightening and growing signs of a slowing economy, lenders are encouraged to innovate and establish more programs to attract more borrowers. To read more, click here.
https://www.housingwire.com/articles/lenders-convince-buyers-to-marry-the-house-and-date-the-rates/
