2023 is bringing new opportunities for San Diego homebuyers who may have either been locked out of the market by competition or decided to sit on the sidelines until things cooled off. While home prices have declined slightly (as of writing, the median price for a single-family home in San Diego is $869,900, down 3.5% from February 2022), most experts agree that home prices aren’t expected to drop significantly this year. To assist you in getting into the San Diego home of your dreams now, I have a unique strategy that will help you save significant money upfront on your purchase: the 3-2-1 buydown option.
If this sounds too good to be true, know that it’s a strategy I’ve successfully implemented over the last several months to help my buyers save thousands over the next three years. Don’t let 6 and 7% interest rates scare you out of making a move! The 3-2-1 buydown option is a shrewd strategy that most San Diego real estate agents aren’t utilizing or educating their clients on. Yet it is an absolute gamechanger and will actually help you save money upfront as a homebuyer, something that hasn’t been at all possible in this red-hot market over the last few years!
What is the 3-2-1 Buydown Option?
The 3-2-1 buydown is a mortgage-financing technique that allows a homebuyer to obtain a lower interest rate for at least the first few years of the loan, or possibly its entire life, in return for an extra up-front payment (often paid by the seller). Each bank offers different products, but most banks will allow buyers to use the 3-2-1 buydown option on either a 30-year-fixed loan or a jumbo loan. The typical structure includes an interest rate that is 3% lower than the standard 30-year-fixed-rate for the first year of your loan. In the second year, your interest rate is 2% less. In the third year, 1% less. Then you’ll be paying the full interest rate for the remainder of your mortgage unless you refinance (the goal being to refinance the 4th year of the loan).
Are There Extra Costs Attached to the 3-2-1 Buydown Option? If So, Who Pays?
Your lender will be able to offer a complete look at your potential costs with the 3-2-1 buydown option, but generally, “the lender will at least want the cost to cover the income that it is forgoing by not charging the borrower the full interest rate from the start.” Either the buyer or the seller can pay to “buy down” the rate. In recent months, I’ve successfully negotiated several contracts where the seller paid to buy down the three-year interest rate for my buyers as a buyer incentive. As your advocate, I always approach the negotiating table with a strong offer, terms, and strategy that will net you the best ROI.
How Can the 3-2-1 Buydown Option Benefit You?
In addition to reducing your home purchase costs upfront, you’ll be able to put the extra funds into savings or other financial assets. When it comes times for your rate to adjust back to the standard 30-year-fixed-rate, you will still have a set monthly payment and you’ll know exactly what to expect.
Experts predict that interest rates will dip later this year and many buyers should plan to refinance at the end of 2023. You will most likely also refinance again in a few years to save even more if rates continue to decrease. The 3-2-1 buydown technique is a powerful strategy that will not only help you buy a home now at a reduced cost, but it will also ensure you continually make astute financial decisions moving forward that will grow your personal wealth.
Can You Really Use the 3-2-1 Buydown Option to Buy a Home in San Diego?
You can absolutely use the 3-2-1 buydown option to purchase a home in San Diego! I have several client success stories from the last year of buyers who bought their dream home with me after we negotiated for the seller to buy down their interest rate.
Edward Kado is one of those buyers. Here is what he had to say about working with me and using the 3-2-1 buydown option to purchase his San Diego home:
“Marilyn is absolutely phenomenal! I recently purchased my first home with her and as a first-time home buyer, I had millions of questions. I knew nothing about the escrow process, shopping rates, our interest rate buy-downs. Marilyn took me through several properties and was unbelievable at spotting issues that would arise at a later date. When we found my dream property, she helped me structure an offer in a way that the seller would pay to buy down my interest rate by 3 points. Many of my friends and family had never heard of such a thing and it saved me thousands of dollars on my monthly mortgage. She went to bat for me and negotiated not only a large price reduction, but a seller paid rate buy down, as well as money back on repairs. She set me up with a phenomenal lender, movers, contractors, insurance, you name it. After speaking with colleagues and friends- I quickly learned that my experience was not the norm. Marilyn provided white glove service from beginning to end and was funny and kind throughout the process. She is a class act through and through!”
If you’ve been holding off on your San Diego home purchase or continued to stay in a home that doesn’t fit your lifestyle, give me a call to learn how the 3-2-1 buydown option and other strategies can help you buy your dream home this year!