Article By: Jim Porter – September 30, 2022
Sellers, including new home builders, are now offering incentives to attract buyers. Home sellers didn’t need to offer financial incentives in 2020 and 2021 because there were three to five motivated homebuyers for every home for sale.
Now that the market has shifted, Realtors and builders are getting creative by calling for price reductions, price improvements and convincing their sellers to offer options to prospective buyers. I remember one builder in the Browns Valley neighborhood in Vacaville offering swimming pools as an incentive back in the mid-1990s to attract buyers.
Now, motivated sellers are advertising incentive options to potential buyers. The most common is a credit for closing costs. Historically, it has been common for sellers to credit buyers for closing costs in Solano County because a lot of veterans and active-duty military buy here with a VA loan. A VA buyer can buy a home with only $1 out of pocket if the seller pays the closing costs.
Solano County is the most affordable market in the Bay Area and many first-time homebuyers benefit from seller credits for closing costs because down payment dollars are usually the biggest challenge for first-time homebuyers. The CALHFA down payment assistance program makes it possible for a non-VA buyer that makes less than $215,000 per year to purchase a home with nothing out of pocket with a small seller credit for closing costs.
Permanent and temporary interest rate buydowns paid by the seller are being advertised today to motivate buyers to get off the fence. A permanent buydown is when a buyer pays the lender discount points to obtain a better rate for the life of the loan. For the first time in more than 22 years the temporary 2-1 buydown is being advertised and paid for by sellers and builders. It’s kind of a gimmick, but it is appealing to buyers who may have rising incomes over the next few years and like the idea of having a house payment based on a 3.875% rate the first year, 4.875% the second year and then 5.875% for the final 28 years with no prepayment penalty.
Seller credits for closing costs can really make a big difference for buyers who are squeaking in with limited funds or buyers who have exactly 5% to 20% down payments. For buyers with large down payments, it is usually best to take the lower sales price, but in our middle-class, first-time homebuyer market, these incentives can make the American Dream come true.
Jim Porter, NMLS No. 276412, is the branch manager of Solano Mortgage, NMLS No. 1515497, a division of American Pacific Mortgage Corporation, NMLS No. 1850, licensed in California by the Department of Financial Protection and Innovation under the CRMLA / Equal Housing Opportunity. Jim can be reached at 707-449-4777.
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