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Gregory Freeman -NMLS 302507

Founder & Senior Mortgage Banker

Scissortail Financial Home Loans - NMLS 336303

gfreeman@scissortailfinancial.com

918-777-EASY (3279) Call us today!

Apply Online @ www.ScissortailFinancial.com

Welcome to the Scissortail Financial Calculator Page

Please let us know if we can help you in any way!

Seller Paid Buydown

How Smart buyers and sellers can turn paying more into paying less

Loan Payment without a Rate Buydown

Purchase Price

Down Payment

Loan Amount

Monthly Loan Payment

Monthly

Rate, Term and Payment

for

years

Loan Payment with a Seller Paid Rate Buydown

For this option - the buyer pays a little more for the house and the seller then uses that extra to pay for "discount points" on behalf of the purchaser to "buy down" or lower their interest rate.

Seller's Closing Cost Credit to Pay for Buydown of

New Sales Price to Cover Buydown Credit

Cash Paid by Seller for Rate Buydown =

Net Sales Price to Seller

Down Payment

Down Payment difference vs. no buydown =

Loan Amount

Approximate Rate Reduction

Approximate New Interest Rate with Buydown =

Monthly Loan Payment with Rate Reduction - enter new rate shown or adjust for actual available options

Monthly

Rate, Term and Payment

for

years =

Results

Payment without Buydown

Payment with Buydown

Monthly Savings

Despite the higher sales price and loan amount, the lower rate = a lower monthly payment

Total payment Comparison

Select Year to analyze total payment difference and savings

0 30

Payment without Buydown

Payment with Buydown

Monthly Savings

What becomes clear here is that even though the "price" of the home is higher, the "cost" is actually lower.

Principal Paid Comparison

Select Year to analyze total principal paid difference

0 30

Total Principal Paid w/o Buydown

Total Principal Paid w/Buydown

Extra Principal Paid

Despite the lower payment with a rate buydown, there is more paid towards principal every month

Interest Paid Comparison

Select Year to analyze total interest paid difference

0 30

Total Interest Paid w/o Buydown

Total Interest Paid w/Buydown

Interest Saved with Buydown

Here again, despite a higher loan amount, the lower rate can still significantly lower your real cost of owning

Loan Balance Comparison

Select Year to analyze loan balance difference

0 30

Loan Balance without Buydown

Loan Balance with Buydown

Difference in Loan Balances

Your loan balance with a seller paid buydown will be higher in the early years, lower through the life of the loan then ultimately, any fully amortizing loan will end up at zero after the full term of the loan

Purchaser's Tax Benefit

Purchaser's Marginal Tax Bracket =

0 60%

Cost of Points Paid by Seller

Value of Buyer's Tax Deduction =

Extra Down Payment Made

Tax Deduction Exceeds Extra D.P. by

The value of this tax deduction is often more than the added amount of the buyer's down payment

The Net Benefit of a Seller Paid Buydown



0 10%		0 15%

Buydown Paid		Interest Rate

Use the sliders here to adjust the buydown amount and interest rate to see how it impacts the total benefit

The net benefit is calculated by adding together the interest savings, the loan balance differential and the tax benefit on points paid. The point at which the graph crosses zero is where this approach becomes beneficial. This is the point at which the interest savings, tax benefit and extra principal paid more than compensates for the intially higher loan balance.

Additional Benefits

Less income is required to qualify

Conventional thinking is to pay less to save money. See the chart below to see how a buydown can be even better:

	At Asking Price	w/4% Reduction	w/4% Buydown
Sales Price
Down Payment @ 20%
Loan Amount
Interest Rate
Principal & Interest
Monthly R.E. Taxes
Monthly Insurance
Total Monthly Payment
Monthly Savings
Annual Income to Qualify

The Seller Paid Buydown can also be used to qualify for more home:

Using the buydown rate from above, the monthly cost of each $1,000 of loan amount equals
This means the savings from the lower rate could qualify you for an additional loan amount of

Seller nets the same amount from either scenario and if they have a capital gains tax liabiliy, the cost of the points paid on behalf of the borrower can be added to their cost basis for the property to reduce the amount of their tax.

The neighborhood benefits as the sale price is higher than it would have been otherwise - this provides for a better "comp" for successive sales and allows a seller to make their home more affordable without reducing the price.

Overall, the seller paid buydown is a smart strategy where everyone truly wins!

This information does not constitute an application nor a Good Faith Estimate. Every effort has been made to assure the accuracy of the information and mathematical calculations provided by these calculators however, the provider, makes no guarantee and maintains no liability for use of or reliance upon the results. These calculations represent "what if" scenarios, are educational in nature and where projections are illustrated, they are not intended to predict future performance of the markets and/or specific properties.

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