Jacob Davis

00:00

Jacob T Davis here, Woodbridge real estate with Jared Evanson here, cross country mortgage.

Jarod Evenson

00:05

What is going on, Jacob?

Jacob Davis

00:06

What’s happening? Like a t shirt? Did you notice that mortgage is upside down on your T shirt?

Jarod Evenson

00:14

No, it’s not. Oh, you know why it’s that way. Why is that? So when I look down, I can actually read it and and know what I do for a living.

Jacob Davis

00:24

Yeah, makes sense. Makes sense. Remind you what industry you work in.

Jarod Evenson

00:28

Something’s got to keep me straight. Sometimes Absolutely, well, what are we doing today? Man, what’s, uh, well,

Jacob Davis

00:34

I’ve been working on, you know, so I’ve got a builder that wants to market that they’re willing to pay an interest rate buy down for a home in their neighborhoods. So 610, Southwest, waha in Sundance, south and Pullman and so wanted to let people know that builder will buy the rate down and just get your take on what that looks like, awesome.

Jarod Evenson

01:02

So there’s a couple different ways to do a buy down. And I love seeing when builders are offering these incentives, because it goes a really long way for a buyer, right? There’s two ways to do a rate buy down, and I always suggest in a market like the one we’re doing, where interest rates are already kind of high, is looking at temporary rate buy downs, where we’re on the verge of, you know, fingers crossed, a period where interest rates are headed down. You know, they’re headed back in the right direction. So, so a year from now, you know, maybe we’re looking at rates that are a lot better than what we’re seeing today. So that’s why I’m a big fan of a temporary interest rate buy down instead of a permanent interest rate buy down. So so the difference is on a permanent interest rate buy down, your money isn’t going to go as far for you in the short term. So, you know, $13,000 on a permanent interest rate buy down might save you. Call it 100 and or $200 a month, right? So, and I would have to look at a whole bunch of things to figure out the exact numbers where, whereas you can take a temporary interest rate buy down with the same amount of money and save more, but the difference is, it’s only for a couple of years. So I like to use the example of the the most popular one that it’s called a two one buy down. And what that means is we will take your interest rate so you’ll lock in at today’s current interest rates on like, let’s say, a 30 year mortgage, and you will save 2% off of that mortgage rate in your payment for the first year and only 1% off of that rate for the second year. So I’ve actually got a demonstration or a an example that I put up on the house on 610, Southwest waha, that you were talking about. I’m going to pop it up real quick. So let’s go that one right there. So everybody raise your hand if you can see the screen there in the back. Okay, looks like everyone can see it. So the example I put up here is so that one on waha for $735,000 So the example I’m using the buyer is putting 20% down payment. Now, you don’t have to do a 20% down payment to be able to get a two one buy down. However, it does affect the cost of it, right? Because smaller loan amount means the buy down is going to cost a little bit less. So most people buying in this price range are typically putting about 20% down so I’m using that as the example. The interest rate that I’m using here is a 6.75% interest rate. I’m not quoting that rate. I’m not saying that that’s what every buyer that’s on this house would get. I’m just saying, you know, I’m using this as an example to get things started. If I was quoting a raid, I have to, you know, put a bunch more information in there. And that’s that’s not what we’re doing here. But so if you had a $735,000 purchase price, 20% down, which is a $588,000 loan, and you had a 6.75% interest rate, you would have a monthly payment. And now this is just principal and interest. I’m not factoring in property taxes or homeowners insurance here, but that would be $3,813 for the principal and interest on the mortgage. Now this is what’s really cool. So on that two one buy down the very first year, remember, you’re going to save 2% on that. So instead of a 6.75% mortgage payment, or your payment being based off. 5% for the first 12 months, you have a payment 4.75% that is almost $750 a month savings. It’s just a couple dollars shy of that. So your principal and interest payment goes down to $3,067 for that first 12 months, which that’s awesome is you are getting, you know, a custom to your new house payment, or whatever everybody wants to save money. So that’s almost almost $9,000 for the year in this scenario. So the next scenario, or excuse me, the next year, so year one, that’s your payment. The next year, it goes up to 5.75 right? So again, that the normal payment on that would be about 3800 bucks. We’re going all the way down to $3,431 for the second year. So that’s $382 a month savings from your from your note rate, which is about, you know, $4,500 for the year. So it’s about half of what you save on the first year, on probably exactly half. And then in year three. So after those first two years, if you are still in this mortgage, a lot of people will probably have an opportunity to refinance out of this before the first two years is up. And we’ll tell you what happens in that scenario. But after those first two years, then you go to your fully, you know, maturing $3,813 pay. But so awesome way to save money. If I was buying how to build their offering and incentive for me, this is exactly what I would want done with the money.

Jacob Davis

06:31

So if, if, let’s say, the buyer, wants to refinance in 12 months, hopefully interest rates are are in the mid fives within 12 months. But you know, who knows at this point? Let’s say we’re in July or August of next year, and I want to refi into a 30 year fix. So what happens then?

Jarod Evenson

07:02

So that’s a good question, because a year from now, you’d only be one year into this temporary interest rate buy down, right? So, so you’ll see on my little chart here, it’s the cost for a two one buy down. This is what the builder basically is subsidizing your payment for in this scenario, it’s about $13,545 so every month, we’re taking from that pool of $13,545 now this money will never go to waste, because we we take out of that pot every single month. And if you were to pay this mortgage off or refinance it, we are going to deduct the amount owed on the mortgage. We’re gonna or what’s left in this account from the amount owed on the mortgage. So let’s just say it was after one full year. After one full year, you’re gonna have $4,588 left in that account. So if your mortgage payoff after one year is $575,000 we’re going to deduct your mortgage payoff by that amount so that that money doesn’t get wasted. So instead of 575 you’re you got about 570,500 so it lowers how much you owe, so that money will never get wasted.

Jacob Davis

08:22

So if, let’s say we’re month nine, the ninth month of the 4.7% period, and I want to refi, do I get the the three months for the first 12 month period back as well.

Jarod Evenson

08:41

Yeah. So that’s about an extra 2200 bucks or so on top of the so you would get about 67 $6,800 back there. Yep. Can I?

Jacob Davis

08:50

Can I use that money and go to Vegas or go to a bowl game?

Jarod Evenson

08:58

A good bowl game, you’re going to go to the bowl game anyway, but which probably the Rose Bowl this year, let’s be honest. But so that money, it can only be applied towards your pay, pay off. So now let’s say you’re refinancing, though, it’s going to just basically get applied to the bottom line. So if you wanted to buy your rate down a little bit kind of like, in some way, shape or form, where we’re kind of applying, you know, that extra money towards, you know, just the bottom line. So your closing costs for your new refinance, buy your rate down or or say, you’re, you won the lottery, and you just want to pay it off, we’re going to cash it off towards that. We are not, though. We can’t give you a check for cash for that difference, so it goes one way or the other. So either towards the payoff,

Jacob Davis

09:47

most likely it’ll go towards a long term refi.

Jarod Evenson

09:50

Yeah, I think so that’s what kind of what I would do, yeah, at the end of the day, that’s, it’s, it’s going to wash out any costs you have on your refi. So it almost I could make it. I don’t want to use the word free refi, but it going to cover a ton of the cost there. So definitely, the sooner, the sooner you’re able to get out of it, the better you know. Because you know, in a in a case where it’s saving you money, or the the closer to that bottom rate, the better. So because then you have some extra money to use towards those costs, sure.

Jacob Davis

10:26

So my mind, there’s no reason to wait for interest rates to drop if a builder’s willing, or if a set any seller is willing to do this two on buy down. I mean, you’re kind of, it’s like you’re it’s almost like you got some interest rate insurance there, like you’re, you’re getting a four, 4% interest rate, you know. And then if rates do drop in the future, you still can refi, plus you get the, you know, you get some money to go towards that refi,

Jarod Evenson

10:56

yeah, no, that exactly. There’s, there’s so much you can do with this, because you can, I mean, you could do a little, you know, if you wanted to take some of your own money and do a little bit of a, you know, take that 6.75 I talked about there. Let’s say you wanted to take it to six and a half, you know, permanent, whatever. But if you think about it, Jacob, just in the last two weeks alone, interest rates are over, like, a half a percent lower than they were back in the middle of July. So you’re already got some savings, right there, monthly savings, and you add this builder incentive on top of it, like you’re getting a screaming deal on this house. Here’s what’s going to happen too, when rates go down, home prices are going up. We know that because more buyers are entering the market, and it’s going to create competition. So get in before, you know, you see any kind of home prices going up.

Jacob Davis

11:50

Well, I think like, like this house on waha, I think it could, you know, if we’re in a crazy market like we have been in the past, I could see that going for 750, or eight even. I think this the smaller single level homes that I’m selling under six are going to be over six. So in my mind, it’s like, buy now at today’s prices and get tomorrow’s interest rate now,

Jarod Evenson

12:22

yeah, exactly like, yeah, to be I love it. That’s what I love about new construction, is because you can do things like this. I think it was the in the last you know, the COVID era, the the single level is this, like a no step would you call this a no step house? Or the No, the,

Jacob Davis

12:43

I mean, basically, yeah, there’s no steps, yeah, the single level ranchers, like,

Jarod Evenson

12:46

I’m up in Spokane, those were, those were tough. They were tough to get everybody wanted it. You’d have builders in these communities that were building lots of houses, and it’s like, those are the ones that went pending as soon as they went live, it was crazy. It’s a it’s a cool style house. A lot of people like it, so it’s what I wanted. I don’t know why, but anyhow, but awesome incentive. A lot of lenders have the ability to do the two, one, buy down. Not all of them. There are a few out there that just don’t have the technology for it. It Simple as that, but most likely, whoever you’re you’re working with probably has an option do this, if not just give, give, give your guy a call. You know, I’ll hook it up. But Awesome. That’s cool that your builders wanting to do that, because it’s a sweet incentive.

Jacob Davis

13:40

Well, that sounds like a good deal. So that’s about all I got. I was just curious how this interest rate buy down looks. I think we think that was some really good detail that you shared there. So thanks for joining on another coug Real Estate podcast.

Jarod Evenson

14:01

That’s right, I’m popping this back up here again for you to see, but thanks for having me, Jacob, looking forward to it next time. I know we don’t have any crazy songs to to go out on today, but

Jacob Davis

14:15

we should play a little wazoo.

Jarod Evenson

14:20

I’m getting so excited,

Jacob Davis

14:22

so excited, all right, well, until next time Cougs.