Overcoming Buyer Reluctance with Rate Buy Downs: Insight from Top Mortgage Originator Kelly Decker

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In this episode, host Robbie English interviews Kelly Decker, a top producing sales manager at First United Bank and an expert mortgage originator. They dive into the concept of rate buy downs, a strategy that can help overcome buyer reluctance by temporarily reducing monthly mortgage payments. They explore who can benefit from this strategy and how it’s calculated, with a focus on the popular ‘2-1’ buy down. Decker provides valuable advice for agents on when to suggest this tool, the limitations, and how to navigate potential risks. This is a must-watch for anyone involved in real estate transactions looking to offer unique solutions to their clients.

Guest Contact Information:
Kelly J. Decker, MBA
Sales Manager/Mortgage Loan Consultant
First United Mortgage Group
214-908-6792
kdecker@firstunitedbank.com
txmortgagegroup.com
Kelly Decker NMLS 119417
First United Mortgage Group NMLS# 400025

Robbie English:
https://www.robbieenglish.com

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TIMESTAMPS:
00:00 Introduction and Guest Introduction
00:44 Understanding Rate Buy Downs
01:48 Limitations and Eligibility for Rate Buy Downs
03:18 Explaining the 2-1 Buydown with an Example
05:31 Understanding the Buydown Process and its Benefits
14:34 Addressing Potential Risks and Downsides of Rate Buy Downs
20:13 Exploring Other Types of Buydowns
23:34 Closing Remarks and Contact Information

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Robbie English (Host, The REALTEA with Robbie English) 0:00
Y’all today we are talking about rate buy downs. And I am happy to have Kelly Decker, who is a Top Producing sales manager at first United Bank. And Kelly ranks among the top 1% of mortgage originators. So we have invited Kelly to jump in, on rate by downs so that we can better utilize this for our buyers and our sellers and really jump in and hopefully save a deal if we need to. Thanks for joining us, Kelly. Yeah,

Kelly Decker 0:33
thank you, Robbie. I really appreciate the opportunity and honored and always always enjoy connecting. So thank you.

Robbie English (Host, The REALTEA with Robbie English) 0:41
We love having you. Tell us what is the rate by down and really kind of how does it work? In

Kelly Decker 0:49
the symbolist. Charles, you know what, what the rate buydown is it’s a, it’s a way to temporarily reduce the monthly payment that a buyer is responsible for in the first few years of their mortgage, utilizing a subsidy typically funded by either a seller or builder. So that’s in its simplest terms is what it is, but it is right now, I think one of the best tools out there to help overcome a lot of buyer reluctance when it comes to look, I just don’t feel comfortable with that payment. Okay, all right, how’s the illusion, we have a solution to be able to reduce that payment, at least temporarily. And I think that there is gaining a lot more popularity, I’m getting asked a lot more about it. But as maybe homes are sitting just a little bit longer. It’s a great tool on the listing side as well.

Robbie English (Host, The REALTEA with Robbie English) 1:47
Right? Are there any type of loans that you can’t do a rate by down on Are they just pretty much open across the board?

Kelly Decker 1:55
You know, there are some limitations, you’re typically you can do them on pretty much any of the conventional FHA VA type financing, but it’s really the occupancy that that’s where the limitations come into play you normally looking at a primary residence or secondary home, really not able to do this on an investment property.

Robbie English (Host, The REALTEA with Robbie English) 2:17
Okay.

Kelly Decker 2:18
So that’s, that’s really kind of where the focus is.

Robbie English (Host, The REALTEA with Robbie English) 2:22
Is it something that only a seller or a builder can pay? What if they’re negotiating a transaction and the sellers not interested? And the buyers really unhappy with that, right? Is that something that they can do?

Kelly Decker 2:35
They can, it’s not as common Fannie Mae, Freddie Mac, allow that they in essence, they would allow any interested party to the transaction to contribute towards the temporary Bytown. So a seller, realtor lender, or buyer, but you normally are seeing it’s a situation where it’s either the buyer or excuse me, the seller or a builder is the one that is contributing. Right? I think maybe what I could do is run through just a quick example to show show kind of what what the benefit is and kind of what this cost is that we’re looking at and how significant that benefit would be. So the most common one that you’re hearing today is referred to as a two one by them. And certainly the answer is what Witcher two and the one stands for us, the buyer is paying a monthly payment based upon 2% below their note rate. So in the scenario that we’re operating with, let’s say at the market rate is 7.25%. In year one of their mortgage, they’re going to be paying a monthly payment calculated based on 5.25. So that’s the two and a two, one. And then year two, that monthly payments calculated based on one person, although the note rate so in year two, we’re at 6.25. In year three, we’re returning back to the note rate at 7.25. So in this scenario, what I’m looking at is a $500,000 purchase, I’m putting into like percent downpayment. So financing $400,000. So look at in how that how that subsidy is calculated. We look and see. Okay, in year one, what’s that subsidy going to be in year two? What’s that subsidy going to be? So over the two years, that calculation comes to approximately $9,500 That’s how much the buydown cost. Okay. So we then look at what’s the monthly savings for the buyers in year one, the principal and interest they’re saving $519 a month on $100,000 law. Okay, that’s, that’s fairly significant when you’re looking at, you know, from a budgetary standpoint, in year two, their monthly savings is $265 a month, and in year three, we’re back To the normal principal and interest came. But that nine $500 and yen that that cost of that buydown is oftentimes for by the seller, with the builder or a private seller, if the whole appraises high now, we can bump that nine $500 into the purchase price. Okay. So that’s sometimes how we’re able to accomplish it where maybe the seller is somewhat reluctant. It’s up front, we then go back and restructure things belong to the appraisal house, at what

Robbie English (Host, The REALTEA with Robbie English) 5:31
rate actually is a buyer having to get approved on is it for example, the five or would it be the seven?

Kelly Decker 5:39
That’s a great question, they still have to get approved at the seven and a quarter percent interest rate. That’s, that’s where their approval stands. And so I think that that’s kind of where on, we as, as, as mortgage professionals, we have to take the time to ensure that we’re educating those buyers that they’re just not totally fixated on what’s my monthly payment? Well, your monthly payment right now is this, but it will go to this. Okay. Right. So so you’ve got to make sure that they can qualify, and if they can carry that monthly payment at that higher higher interest rate, let’s

Robbie English (Host, The REALTEA with Robbie English) 6:14
say they decide to refinance or sell before the buy down kind of ends. Are there any prepayment penalties that they’d have to do? Or is that just would be money lost?

Kelly Decker 6:24
Yeah, that’s a great question. I think that that’s one of the the most beneficial aspects of this temporary buy down is what happens if they end up paying off early. So there is no prepayment penalty. But let’s say at the end of year one of this scenario that we’re working with, that they you know, they had $9,500 in their account in this temporary buy down account, and they use $6,000 of the 9500. Well, so now they’ve got $3,500 left in this account. They decide to refinance, that $3,500 is applied towards their principal pay off on a refinance. They don’t lose it.

Robbie English (Host, The REALTEA with Robbie English) 7:07
Okay, so it sounds like the money is actually held in maybe a lender escrow account that would be separate from what they are actually using to pay their, you know, taxes and insurance.

Kelly Decker 7:20
That’s exactly correct. It is it’s, it’s signified as a special escrow account, it’s helped with the lender. So the lender is taking their normal monthly payment, and then taking that subsidized amount out of this additional account and keeping track of that. So that again, when it when the time comes if there are excess funds, it’s it’s they’re not lost, they going to be applied. So if you compare that to say, like a permanent buydown, where someone’s just going to come in and pay planks cross, you know that they’re never getting any of those funds back, they’re making a bet that interest rates will stay, where they’re at or go higher, and that they’re going to keep that mortgage for X number of years to be able to realize them on a return on those funds. They’re, they’re buying down that interest rate. And in this case, it’s actually in many cases, they’re betting the other way is that they’re betting that interest rates are actually going to drop in the next couple of years. So that they will be in a position to refinance, taken advantage of lower rates and be able to maybe have some funds left over in their temporary buydown account to apply toward principal. And that means how they’re able to get into the house that they want at an payment they feel comfortable with, right, on a monthly basis. And so that’s really that we’re we’re helping to get over that reluctance that someone has right now is, you know, I interest rates are so high, just don’t feel comfortable that payment, well, here’s how we can overcome that objection.

Robbie English (Host, The REALTEA with Robbie English) 8:52
I just had a transaction that we just closed on. And during the option period, the buyer’s agent sent over termination because they did not like the payment. And she was very frustrated and upset because she’d been showing them for an extended period of time. And then they get their payment and they’re not liking it. And she’s not even trying to save the deal. So I immediately pick up the phone and start trying to talk to her and find out what the situation is. Right. And long story short, I literally asked her had they thought about a write it down. And she did that typical response that some agents do that. That’s the mortgage part. That’s not my job. Why? And I said, Well, he, you know, you ought to you know, at least talk to him about it. And she immediately asked, Are your sellers willing to pay for a bite down and I said, I actually don’t know you’ve not presented us with anything. And it took about five days for them to finally get everything together. And it was a significant savings. Is there a way? Or is it kind of difficult to kind of figure these out on our own? Or is it going to be specific to the originator and the lender to where it’s going to be financed? Through? Yeah,

Kelly Decker 10:17
I would say that if you know how much the client is financing, and you know what interest rate they’re paying, then you can you can figure it out, there should be some calculators online, you can definitely contact me, I’m happy to run those numbers for you as well. But it’s, it’s oftentimes working directly with a loan originator that does know as a failure with temporary buy downs, they can work those numbers stop. Again, this is it’s not anything new in the business is simply a tool that hasn’t been useful, there hasn’t been a need for it. And so the need is there now. And so some people may that haven’t been in the industry quite as all, maybe just aren’t aware of the tool. But I think it also just goes back to that communication aspect of, or using a loan professional making sure that you’re educating and communicating with not only your your clients, but your referral partners, and ensuring that, you know, all the information is being shared and education is in place to make informed decisions on so that we’re not spinning wheels, like what you ran into Robbie.

Robbie English (Host, The REALTEA with Robbie English) 11:27
Yeah, it was, it was very frustrating, because I thought they would have already seen the payment well, before they even, you know, put in an offer, I thought their loan originator would have done that, and they didn’t. And I think it was symptomatic and showed really, they probably needed somebody different because it took five days to kind of work through that. And, you know, it was, of course better for my seller to, you know, hold on to the deal instead of losing it. Frank? And are you finding that more buyer’s agents are trying to find out about this or talking to their clients about it? Or is it mainly maybe listing agents who are reaching out and finding information to include in their marketing for their property? So

Kelly Decker 12:18
yeah, that’s a good question, Robbie, I’m finding that right now more on the sales side is listing agents who are seeing, you know, what, maybe this, the market is slowing just slightly? And what unique ways can we position our listing to stand out from from another? So yeah, I see, I see a lot more on the listing side, mentioned in that offering that in their, in their MLS. But again, a lot of that, that’s great that is out there. But it’s really up to the buyer’s agent, and, more importantly, the loan officer to do the education with the buyer to understand what is this mean? Yeah, that the seller is willing to give me $9,500 In concessions, but how do I use that? What does that even mean? And so that’s, that’s where this education piece of it really comes?

Robbie English (Host, The REALTEA with Robbie English) 13:09
When you have, let’s say, a conventional financing. And it may be they’re putting 10% down, so they’re limited to 3%. If they’re getting money from other places, does that affect the money that they can get from a seller that would be willing to do a buy down? Correct money from their closing costs?

Kelly Decker 13:31
Yeah, so there are limitations, as you mentioned there, and so what you’re looking at is that that temporary buyer down and does go towards the total limitations. Limitation costs is based upon the sales price of the home. Right? So what we’re looking at is and like, if you’re doing 10%, down, it’s 3%. If you’re doing 10 to 25%, down here up to 6%. And in greater than 25%. Down, it’s capped at 9%. Very rarely are we getting anywhere close to those caps. times you know, if we’re getting in that, that, you know, 10% down or last maybe. And then again, that’s kind of where we have to just sit down and put together a strategy of are we utilizing the funds properly. So it may just be a way of okay, well, we need to reduce this contribution and move it over to this bucket. And that way it make it all make it all work. Yes, there are some limitations, but rarely are we running out against those limitations. What about potential risks

Robbie English (Host, The REALTEA with Robbie English) 14:35
or downsides for a rate buydown for a buyer Are there really any?

Kelly Decker 14:42
I think that it goes back to a buyer getting comfortable with a monthly payment that’s much lower than what their note rate is and then all of a sudden here comes note rate and right. They’ve they budge Did they plan they’ve set up their their financial lifestyle based on the lower payment. And it’s no longer that that the payments they’re making. So that I think that that’s, that’s the risk is in that it again, I think it comes back to the education component, where we as lenders have to ensure that everyone involved knows that this is this is not going to be in place for the full life along that our goal would be to refinance when rates drop, but worst case scenario rates don’t drop. It’s not as if they’re audited adjust rate, we know worst case scenario with their payments going to be very raking shirring, that they see that understand that you know this, do you feel comfortable with this? Okay, so that’s the baseline. Now, we’ll see if we can improve upon it. And that’s kind of where we go. But that’s I think that’s the risk component that that buyers would run into is I see it as kind of one of the few true win wins between a seller and buyer where the seller is able to come in and offer a modest incentive, that creates a significant benefit for the buyer, and creating a win win on both sides. Yeah,

Robbie English (Host, The REALTEA with Robbie English) 16:12
it’s it definitely saved the deal we were doing, and enabled them to continue purchasing and I was kind of frustrated that the buyer’s agent didn’t take the initiative and, you know, investigate that for themselves. And, you know, I got that typical, not doing the mortgage person’s job,

Kelly Decker 16:30
bro.

Robbie English (Host, The REALTEA with Robbie English) 16:31
I was like, Yeah, but your job is to, you know, represent your client at the highest level and part of your fiduciary duty as a real estate agents to kind of oversee everything. Yeah. And I think people forget about that.

Kelly Decker 16:45
I think it’s a matter of too, just having a why it’s often very important to have a great relationship between your as a buyer’s agent, having your preferred lenders, did you know that you’re referring out true professionals that are going to be bringing these solutions proactively to the table? Yeah, these are feeder partners, not transactional widgets that are you know, you’re just going to replace it each time that these are true professionals that are coming to the table and are part of your, your toolbox of success to get a deal. And the client the best thing, boss,

Robbie English (Host, The REALTEA with Robbie English) 17:23
absolutely. Across the board from lender to lender, do they figure the costs of a rate by down with the same or do different lenders use different factors on the actual cost?

Kelly Decker 17:37
Yeah, it should be the same. That match should be the same regardless. On that buydown compounded of it, again, it’s just making sure that you have the inputs correctly around how that’s being, how much is being financed, and what’s the interest rate along with the term. So yeah, it’s, it should be the same regardless of the lender that you talk to.

Robbie English (Host, The REALTEA with Robbie English) 18:00
What about Jumbos if you do my Jumbos, that’s

Kelly Decker 18:03
Jumbos been portfolio type lawns, it’s going to be on a case by case basis. Right now we’re not operating a temporary buydown on the jumbo portfolio program that we’re offering. We do have it on pretty much every other program. But yeah, right now we’re not offering that that would probably be on a case by case basis with with each portfolio lender because guidelines for the portfolios are are really new lots amongst the lenders. So basically just a regular conventional VA FHA style of alone. Yeah, exactly. That’s kind of where we’re seeing them be the have the biggest bang for the buck right now.

Robbie English (Host, The REALTEA with Robbie English) 18:48
Is there any type of disclosure that a real tour would need to make on a bite down that they would need to be extra careful, I know, mortgage y’all have tons of disclosures that you have to put in the extra little wording and you know, based upon this, is there anything that we need to be or just say, you know, offering to one bite down and you know, check with the agent for more details or

Kelly Decker 19:14
yeah, in terms of writing something like that into like a listing or something of that nature. Yeah, probably word it open ended, you know that we you have an incentive, or hurry credit towards closing events, which can’t be used towards a temporary buydown. We have as you mentioned, we have a tremendous amount of disclosure that we have to do on our side, right in the contract. It’s it’s just references a typicals concession from the seller. As you guys are writing the contract, there’s no need to designate that it has to go towards the to one buyer down or any type of temporary buyer down. It’s just a credit towards closing costs. We really take care of the disclosure side of that Once we get it into our system and educating the buyer on it,

Robbie English (Host, The REALTEA with Robbie English) 20:05
yeah, and the contract in Texas, the one to four, it’s 12 a one b, that they could do or in the amendment it is item number four that they could add it. The Be careful is always check when you’re filling out that amendment to make sure that you checked while they won’t be in the contract. So you’re not losing any money as you’re putting stuff on the amendment. Any other words of wisdom or, you know, a listing agent out there is the two one the most popular, are there any others that are out there?

Kelly Decker 20:36
There are two one is the most popular. There is a 321 is well? Well, yeah, it’s significantly more expensive. So we’re not seeing that utilized nearly as much. There is a one one buy down where the rate your monthly payments based on 1% below for two years. And they’re the one zero buydown where it’s just down one year from the no rate. And then in year two, it returns back to the the note, right. So there are some variations of it, again, consulting with your loan professional, and I work, help out a lot of my agents that have listings, and I’m not involved in the transaction, but I’m helping provide information and guidance on how to structure that. But in my mind, right now, you you can get more out of that specific to a buyer wanting to pull the trigger and move forward versus reducing that price by $10,000. Everyone else being whole and the same amount of money changing hands, you can get more out of it by doing this temporary buy down versus a reduction in price. And just making sure we’re communicating that on the on the listing side of things. Right. Yeah, how I would approach it. That’s huge, because

Robbie English (Host, The REALTEA with Robbie English) 22:03
I think a lot of agents just immediately think price and their their pricing strategy, and they’re doing price reductions, and they’re not looking for other creative methods, that could definitely help a buyer with that transaction. Because even if you drop that sales price by $10,000, let’s say, then it doesn’t really help them with their payment, because $10,000 isn’t going to reduce it that much where the rate buydown really would.

Kelly Decker 22:34
Yeah, exactly. It’s, it’s insignificant, that $10,000 reduction in price, what they’re gonna get on a monthly basis. And right now, because interest rates are really our payment is a, a predominant deciding factor for wires. And that’s really kind of where we’ve got to focus our efforts on how can we help with this payment, this is an effective way to do it. And you see a lot of a lot of new construction, a lot of builders, the big builders, they are they’re utilizing this tactic across the board. Right, seeing these, these, this is the type of incentive, it’s being offered by the deck goers. So that’s kind of how, again, they’re, they’re, they’re using it, how can we mirror that take advantage of, of, of ways to to replicate that and maybe in the resale side of things and, and compete on an equal ground?

Robbie English (Host, The REALTEA with Robbie English) 23:32
Yeah, that really does help. Thank you, Kelly, I appreciate you taking the time. I know you’re busy and got a whole team of mortgage professionals, they are working with clients trying to get everything done. If folks wanted to reach out to you what is the best way that they could get a hold? I

Kelly Decker 23:51
would say a couple of different ways. So my email address is the letter K Decker D CK er at first United Bank or first is spelled out on you can also reach me on my mobile anytime it’s 214-908-6792. I work when you were I mean it’s so I understand this is not a nine to five job it is clients need us we are available. So text, email, call whatever you might need when you need it. We learned all over the state of Texas actually we learned all over the country for that matter. So if you have a client moving out of state, oftentimes we can help with both relocations as well. Love

Robbie English (Host, The REALTEA with Robbie English) 24:30
that thank you again. And if you did not catch his email address or phone number, we are going to put it in the show notes below. So you will be able to reach out to Kelly and learn more about the services and types of loans that he handles so that he can help your clients succeed and that real estate transaction. Thanks again, Kelly.

Kelly Decker 24:52
Yeah, thank you, Robbie. I appreciate the opportunity.

Robbie English (Host, The REALTEA with Robbie English) 24:55
Absolutely. Thank you for tuning in to this episode. We’re dropping a new episode every Sunday at 12 noon central. We’d love your support for the real tea with Robbie English. Please do us a favor and leave us a review on Apple podcasts. It only takes a couple of seconds and it really does help us out. Also, be sure to share it with your colleagues and friends. Until next time, we hope you have a profitable and productive week.