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Products & Coffee with Josh Ep 3: The 2/1 Buydown · The Can-Do Lender Podcast Series: Products & Coffee

• 0:00
  SPEAKER_00: This is not the 2008 financial crisis.
• 0:02
  SPEAKER_00: This is an affordability crisis.
• 0:03
  SPEAKER_00: Last Wednesday on my market update, I said August and September were not a dead market on housing and mortgage inquiries.
• 0:08
  SPEAKER_00: They were a dead market on affordable payments.
• 0:10
  SPEAKER_00: We processed a full board.
• 0:12
  SPEAKER_00: Four files recently funded.
• 0:13
  SPEAKER_00: The rest sat on the fence for the same two reasons price and rate.
• 0:17
  SPEAKER_00: The work did not disappear.
• 0:19
  SPEAKER_00: The payment priced people out.
• 0:20
  SPEAKER_00: Affordability has three levers home prices, mortgage rates, and income.
• 0:24
  SPEAKER_00: Income is the one you can still move.
• 0:26
  SPEAKER_00: Welcome back to Products and Coffee with Josh, episode three.
• 0:28
  SPEAKER_00: I've got my white home bridge alma moder mug instead of black this time, but the same shirt as last episode because this episode's really continuing.
• 0:36
  SPEAKER_00: On last episode two, I said don't wait for a miracle rate cut.
• 0:39
  SPEAKER_00: Manufactured and less desirable starter homes are how a lot of buyers are making the payment match the income they have today.
• 0:45
  SPEAKER_00: Know the number you can afford and still have a life after payment.
• 0:48
  SPEAKER_00: Match the house to the paycheck.
• 0:50
  SPEAKER_00: That was last week's house.
• 0:51
  SPEAKER_00: This week is the other half of the same sentence.
• 0:54
  SPEAKER_00: Sometimes the house is already right, and a 2-1 buy down is how the payment that fits in your mind today gets you in the door while you get used to the worst payment you could still live with.
• 1:04
  SPEAKER_00: Conventional, FHA, VA, and USDA can all carry it.
• 1:08
  SPEAKER_00: A 2-1 by itself is not a cheaper house, and it's not a promise that rates are coming down.
• 1:13
  SPEAKER_00: On a file like one I just worked on, it can be actually two buy downs and not just one.
• 1:17
  SPEAKER_00: First, a small permanent buy down.
• 1:19
  SPEAKER_00: Discount points by the permanent note rate down.
• 1:21
  SPEAKER_00: So in year three, the rate you live with after the temporary help ends is already under 7%.
• 1:27
  SPEAKER_00: That's the worst case.
• 1:28
  SPEAKER_00: That is the number you qualify on.
• 1:30
  SPEAKER_00: Then the temporary 2-1 buy down sits on top of that.
• 1:33
  SPEAKER_00: So year one, you pay as if the note is 2% lower.
• 1:36
  SPEAKER_00: Year two, 1% lower.
• 1:38
  SPEAKER_00: Year three forward, you pay the full note bought down below 7%.
• 1:42
  SPEAKER_00: Here's a fee worksheet that breaks those points into two lines.
• 1:45
  SPEAKER_00: On this example, the permanent discount is roughly$4,200.
• 1:49
  SPEAKER_00: Then the 2-1 buy down points are roughly$9,000.
• 1:51
  SPEAKER_00: The 4.875% you see on the worksheet is year one.
• 1:55
  SPEAKER_00: It's not the permanent note rate.
• 1:57
  SPEAKER_00: Take a look at this card.
• 1:58
  SPEAKER_00: This is still the VA example on a$389,000 purchase price.
• 2:02
  SPEAKER_00: It's also an example from late September, not a quote and not the only program.
• 2:05
  SPEAKER_00: Year one of this example is still 4.875%.
• 2:09
  SPEAKER_00: And the PIT IA payment lands around 2723.
• 2:12
  SPEAKER_00: That's the payment that fits the paycheck in your mind today.
• 2:15
  SPEAKER_00: Year two is 5.875 around 2970.
• 2:18
  SPEAKER_00: Year three forward at 6.875 around 3230, depending on tax and insurance.
• 2:23
  SPEAKER_00: The permanent points bought the note rate under 7% to 6.875.
• 2:27
  SPEAKER_00: That's not the payment you want, but in this example is the worst payment you can live with, just in case things do not get better in the next three years.
• 2:34
  SPEAKER_00: The 2% off in year one and the 1% off in year two lets you tolerate the higher payment and get used to being a homeowner.
• 2:40
  SPEAKER_00: So if the higher payment does hit, you can at least live with it and still have a life after payment, even if it's not really the life you want.
• 2:46
  SPEAKER_00: Cash to close on this sheet was about$13,000.
• 2:49
  SPEAKER_00: The seller's contributing 4% to the buyer's closing cost about$15,000.
• 2:52
  SPEAKER_00: That credit pays the two one first, the roughly$9,000 in points, then what's left over goes towards the rest of the buyer's cost.
• 2:59
  SPEAKER_00: The owner's title credit is not on this worksheet.
• 3:01
  SPEAKER_00: Another$1,000 to$2,000 comes off the bottom line when that credit gets applied at closing.
• 3:06
  SPEAKER_00: Your file may not match these dollars, but the shape of what we are looking at could.
• 3:10
  SPEAKER_00: Remember, you still qualify at the year three payment, not the year one payment.
• 3:14
  SPEAKER_00: So if year three does not work on paper, the two one does not magically get you through underwriting into a loan approval.
• 3:20
  SPEAKER_00: But it does change how year one and year two feel while you first live in a house.
• 3:24
  SPEAKER_00: The seller or the builder has to fund the buy down, so it must be negotiated into the contract.
• 3:29
  SPEAKER_00: But they don't have to pay more towards the buyer's closing costs if they don't want to.
• 3:33
  SPEAKER_00: Each program has its own limits.
• 3:35
  SPEAKER_00: On this VA example, that credit's set inside the 4% seller concession cap, and it's a purchase.
• 3:40
  SPEAKER_00: Other loan programs can allow up to 6% seller concessions depending on the loan structure.
• 3:44
  SPEAKER_00: So there are multiple ways to do a permanent and temporary buy down.
• 3:48
  SPEAKER_00: But the main thing is to help you with the needs versus the wants today.
• 3:52
  SPEAKER_00: The 2-1 is the payment that fits your wants and your mind today.
• 3:55
  SPEAKER_00: Year three is the worst payment you can live with if needed, and the market does not get better.
• 4:00
  SPEAKER_00: If year three is a payment you already know you cannot live with, then you need to look at a different house.
• 4:06
  SPEAKER_00: Math is math, and manufactured, modular, or less desirable starter home can still provide an outlet.
• 4:12
  SPEAKER_00: Do not use year one to buy a door that breaks your household in year three.
• 4:17
  SPEAKER_00: But at the same time, don't sit around hoping prices and the Fed will both collapse on your calendar.
• 4:22
  SPEAKER_00: If rates come down, you can always refinance later.
• 4:25
  SPEAKER_00: So a household is one disciplined buyer or two people who can carry the worst payment and still have a life after payment.
• 4:32
  SPEAKER_00: The two one is how you how you get the payment that fits today, while you get used to the one you can still live with later.
• 4:38
  SPEAKER_00: Even if that later life is not the one you want.
• 4:41
  SPEAKER_00: Pray on it, meditate on it, and don't wait for the miracle.
• 4:45
  SPEAKER_00: Create it.
• 4:45
  SPEAKER_00: If you are buying or refinancing in Florida or you just want the numbers with no pressure, send me a DM or visit www.candolender.com.
• 4:52
  SPEAKER_00: Knowing is half the battle.
• 4:54
  SPEAKER_00: Until next time.