The Builder Forward Rate Solution

The townhouse market in Santa Cruz County is showing a relatively healthy 20% of the inventory under contract, and number of sales were up by 54%. Inventory is up by 65% and the Median and Average prices are at roughly the same level they were a year ago. 

On the other hand, we are hearing from some buyers that they are waiting for interest rates to come down before they want to make their move. 

In response, we have identified a special loan program for the last few Townhomes remaining at The Dwellings of Soquel, where we are now able to help these buyers resolve their situation with a Builder Buydown to 4.99 percent for a 30-year fixed rate loan. This provides an alternative to people who have been wishing for a price reduction in order to be able to afford to buy the home they want today instead of having to wait.

To help illustrate how this is made possible, let’s say you’re looking at the larger of the two available floorplans priced at $1,250,000. You could ask for a $55,000 price reduction, bringing the purchase to $1,195,000. With 20 percent down and a market rate loan at 7.375 percent, that puts your monthly principal and interest around $6,600.

Now compare that to buying at the full $1,250,000, but with a fixed rate of 4.99 percent, made available through a builder’s forward commitment with their preferred lender. In that scenario, your monthly payment comes in closer to $5,400.

This type of program is only available on newly constructed developments and is handled by the developer’s preferred lender who makes a substantial financial commitment in order to be able to deliver the necessary rate on a 30-year loan.

Since interest rates are being discussed, here are some additional details for RESPA compliance purposes: The above scenario is an estimate only and is based on a 740 FICO score on a 30 year (360 months) Conventional fixed-rate mortgage at a loan amount of $975,000, 80% LTV, rate of 4.99%, and APR of 5.253% (1 point). 4.99% rate is based on a builder paid forward commitment to buydown the market rate (1 point = 1% of the loan amount).

When you look at the big picture it helps show that even though the price is higher, you’re saving about $1200 every month. And over 30 years, that difference can add up to substantial savings. 

And while this option won’t necessarily work for everyone it’s a good reminder that price and cost aren’t always the same thing, and it might help a few people be able to afford a place that would be otherwise out of their reach.