Whenever you hear about buydown loans again, it’s a sure sign interest rates have risen and the real estate market has slowed down.

A buydown occurs when the interest rate is “bought down”, that is, with cash to pay for a lower interest rate known as a permanent buydown or “borrowed” into the future with a higher base interest rate as in a temporary buydown. The lower interest rate, the lower the monthly payment and loan qualifying is easier. Conversely, the lower the interest rate the more it costs.

The permanent buydown buys the rate down for the life of the loan. Typically it costs one point or one percent of the loan amount to buy it down a quarter of a percent in rate. If the current rate is 6.50% for example, you can buy it down to 6.25% for about one point.

A temporary buydown is for a short, set period of time. A 2-1 buydown is most common where the initial interest rate is two percent below the base note rate for the first year and then 1 percent below the base for the second year, finalizing at the base note rate for the remainder of the term. An example would be a base note rate of 7.50% with the first year at 5.50%, the second at 6.50% ending with 7.50% for the remaining 28 years on a 30 year loan.

It can be bought down with cash and/or a higher base interest rate with revenue called a Yield Spread Premium, also known as YSP, rebate or premium pricing. Think of it as leveraging tomorrow’s higher interest rate to gain a lower one today.

Why is this important to you as a seller? It increases your pool of qualified buyers for your home. It costs you between one to three points but it is part of dealing with a slow market; either lower the price of your home or give more incentives. It is a widely used tactic by new home builders when the market softens.

Why is this important to you as a buyer? The buydown subsidizes your monthly payments to allow time for your income to catch up to the yearly increase of approximately 7.5% above the previous year’s payment. You can buy the home you want today rather than wait, or worse, buy a lesser home you really didn’t want. You get the added fixed rate security benefit knowing exactly what your monthly payment is at any time, unlike an adjustable rate mortgage. Structured correctly, you benefit at the seller’s expense.

Why is a permanent buydown not a good option on a purchase? One main purpose of the buydown is to get more people to qualify for more home. Three point cost only drops the interest rate about

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Once the spring home buying season begins in North America, millions of homes will be on sale. But according to the annual UCLA Anderson Forecast, slowing home sales may spell trouble for the national and California economies.

So how can home buyers and sellers circumvent the slow home sales period and ensure they get the best deal for their property?

The open house is a traditional way for home sellers and buyers to participate in the spring buying season. An open house involves a public home viewing held at a specific time and date.

Open houses are an efficient way to market your house because they help to draw attention to the home, allow buyers to evaluate the property and help sales people announce new listings or remind buyers of old ones.

Neighbours can help in your marketing efforts by bringing attendees and prospective buyers and endorsing your property for you.

To help sales people lure prospective buyers and ensure success in your home sale you should

- prepare your home for public viewing

- make any repairs to your home that may be needed

- create an inviting atmosphere for prospective buyers

- advertise your open house through signs, the local classifieds and online listings

- invite neighbours for a private viewing before the open house begins

- offer visitors brochures and photographs with contact information

- get a mortgage lender to assist buyers with finance

- ensure security is taken care of at all times

For sellers, open houses can be the ideal way to showcase all the unique features of your property. For buyers, they can simplify the task of finding your ideal, dream home.

About The Author:

Jonathan Gropper is President & COO of OnlyOpenHouses.com, a comprehensive portal to list and find open houses in New Jersey.

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What is revenue property? What does it mean? The meaning revenue in the dictionary says: Yield from property or investment; income. I mean cashflow. Cashflow meaning what is left over once all the variables are subtracted off of the balance sheet. Let us look at what determines cashflow:

First we must look at INCOME: Income is rent, parking, laundry, or other sources. Other sources could be a billboard or renting out the garage. This is called the “Gross Operating Income”, or GOI.

Because the income fluctuates with renters and advertisers coming and going, we subtract an amount for vacancy loss. Most professionals use 5%+ depending on the area. When subtracted from the Gross Operating Income, we are left with the “Effective Gross Income”, EGI .

Second we must look at EXPENSES: Expenses are maintenance, taxes, utilities (heat, electricity, water), insurance, possibly management fees and of course miscellaneous items that pop up. By adding up all of the above, you have the “Total Operating Expenses”, TOE .

To determine the cashflow of the revenue property you must do the math: By taking the “Effective Gross Income”, EGI and minus the “Total Operating Expenses”, TOE you are left with the “Net Operating Income”, NOI .

The last step to calculate is the “Annual Debt Service”, ADS , which is the yearly sum of all your mortgage payments.

Now we have our formula:
Cashflow = NOI-ADS

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