Hunting for a new home can be a long and arduous process. Many buyers have been shopping for years to find a home, managing bidding wars, adjusting to inflated prices, and finding little-to-no inventory on the market that fits their needs. Finally, we are in a buyers’ market with better prices, more inventory options, and available financial incentives, but interest rates keep going up making payments higher and higher.
Did you know there are opportunities available to make buying a home more affordable? In some cases, there are special loan programs that offer interest rates similar to those available in early 2022. At Olson Homes, we do our best to make the homebuying process as easy as possible, and we can help you learn more about these opportunities.
Choosing to buy a new home is the easy part, especially when it’s time to get down to the financial details. When you’re buying a new home, it’s important to understand your budget, interest rates, and available programs that can assist you in obtaining your dream home. At Olson Homes, we offer several programs that lower monthly payments and make purchasing a new home attainable.
There are a few ways we can help and we’re going to walk you through two of them: BUYDOWNS AND ARMs.
Buydowns
A buydown is a mortgage financing option that allows homebuyers to obtain a lower interest rate when taking out a mortgage loan. Think of it like a mortgage subsidy offered by the seller on behalf of the homebuyer. In certain scenarios, this lower payment allows the buyer to qualify more easily for the mortgage and is a good option to help make the home more affordable. Buydown terms can be structured in various ways including a permanent buydown.
A permanent buydown lowers the interest rate for the life of the loan. This requires paying discount points, which increases the closing costs at the time you take out the loan. Discount points can be paid with incentives offered by the builder, where applicable. This option is available for select homes at our Blossom Walk and Jasmine Walk communities.
A temporary buydown is easily described as a subsidy of the mortgage payment for the first 2 to 3 years. The total amount saved in payments during this initial period equates to the cost of the buydown. Builder incentives can be used to pay that cost, effectively subsidizing the initial payments.
- ● In a 3-2-1 buydown, the buyer pays lower payments on the loan for the first three years. For each of the first three years of the mortgage, the buyer’s interest rate increases by 1% annually. The full interest rate would apply on the fourth year of the mortgage loan through the remainder of the thirty years.
- ● A 2-1 buydown is structured the same way, however the discount is for the first two years. Your interest rate would increase by 1% annually until you reach the full interest rate in the third year, and would remain the same through the life of the loan.
Example of Temporary Buydown Mortgage
Use these examples to get a better idea of how a buydown works over time. These figures are based on a purchase price of $724,990 with a 20% down payment, resulting in a loan amount of $579,992. Figures below are representative of payments without taxes or insurance.
3-2-1 Option:
- – Year 1: $2,524 at 3.25% interest
- – Year 2: $2,853 at 4.25% interest
- – Year 3: $3,203 at 5.25% interest
- – Year 4: $3,571 at full 6.25% interest
2-1 Option:
- – Year 1: $2,853 at 4.25% interest
- – Year 2: $3,203 at 5.25% interest
- – Year 3: $3,571 at full 6.25% interest
A buydown is appropriate for people who have stable income that is set to grow over time. Keep in mind your long-term plans when buying a home and consider how long you might stay at the home’s location before committing to this financing arrangement. Also, remember that not every mortgage is eligible for a buydown. Be sure to check with your financial institution before applying.
ARMs
An adjustable-rate mortgage (ARM) is a loan in which the interest rate may change periodically based on a pre-determined index. The ARM loan may include an option for an initial fixed-rate period that is typically 5-10 years. The interest rate may then adjust each year afterward, or once the initial fixed period ends. For example, with a 5/1 ARM loan for a 30-year term, your interest rate would be fixed for the first 5 years and could fluctuate up or down each subsequent year for the next 25 years.
5/1 ARMs (Hybrid) generally provide the lowest interest rates and monthly payments during the initial rate period. These loans are ideal for buyers who plan on moving in 5 to 7 years.
Similarly, a 7/1 ARM (Hybrid) starts with a fixed interest rate for the first seven years, and then switches to a variable rate for the life of the loan. This variable is based on the index stated in the loan agreement, plus a margin set by the lender. This is a good option for first time buyers that plan to have a family in the future and will most likely move to a larger home in 7 to 10 years.
Pros
- – A hybrid ARM offers potential savings and low payments in the fixed-rate phase.
- – An ARM offers financial flexibility, which is helpful if you’re likely to make more money in the future.
- – ARMs have caps that limit how much the mortgage rate and your payment can increase over the loan’s lifetime.
- – Your payment could decrease if interest rates fall and drive down the index.
- – If rates drop lower in the coming years, you can always refinance into a 30-year fixed rate loan.
Cons
- – Your payments could increase if interest rates rise after the adjustable period begins.
- – If your income doesn’t increase by the time the fixed period is over, you may be uncomfortable with your payment.
Find out if an ARM is right for you by speaking with one of our Home Advisors at Olson Homes, who can put you in contact with one of our Home Loan Consultants. Eligibility for these financing options is dependent on credit history, the loan amount, down payment percentage, and other factors. Learn more about what you need to buy a home using our Homebuying 101 resources.
Why Live in an Olson Homes Neighborhood?
Our homes offer Live Better™ features that put your wellness first and provide everything you need to embrace a healthier, smarter, and planet-friendly lifestyle. From smart appliances like Wi-Fi Thermostats to PureAir filtration systems with HEPA filters, and walkable locations, we aim to support your wellness and the health of our planet.
Our modern, urban neighborhoods are also settled in the heart of LA and OC, where you’ll enjoy convenient proximity to some of the most attractive activities, venues, and local hotspots that make Southern California a great place to live. Reside just minutes from amusement parks, entertainment venues, dining experiences, and freeways that make it easy to get wherever you want to go!
Explore our communities and discover the home of your dreams at Olson. We’ll do everything we can to take advantage of the opportunities available to you so you can start off 2023 in a brand new home! Contact a Home Advisor today and schedule your in-person tour of our models to learn how you can secure an Olson home today!
Looking for your new home sooner? We have a select few homes available for a quick move-in, take a look.
Quick Move-In Homes in Buena Park
Our Jasmine Walk neighborhood is a community of modern townhomes with elegant designs and approachable OC prices. Enjoy the holidays in a brand new home in this urban gated community with units featuring an abundance of natural light, contemporary living spaces, generous kitchens, smart home technology, energy-efficient appliances, and upgraded flooring. Buy before the end of the year and take advantage of interest rates as low as 4.85%. Explore our quick move-in options here, and reach out to a Home Advisor to schedule your in-person viewing. **Select homes start at $689,990.
Quick Move-In Homes in Compton
Spend the holidays getting acquainted with the abundance of features our Blossom Walk homes have to offer, and enjoy the wonderful adventures that await you when you live in the heart of SoCal. This stylish neighborhood is nestled along tree-lined streets and boasts homes with quaint backyards, two-car garages, private community amenities, smart home features, and energy-efficient appliances that will make you want to call this your forever home. Select homes are available for move-in by the end of the year with interest rates as low as 3.75%. Browse the quick move-in options here. **Select homes start at $724,990.
*Olson’s Connected Tech features vary by neighborhood. Some features are optional. See Home Advisor for detailed features per neighborhood. **Pricing is effective date of publication, and subject to change and availability. Buydown payments are hypothetical examples. Example payments include Principle and Interest. Tax, insurance, and HOA are not included. The 4.85% interest rate for a quick move-in home at Jasmine Walk is based on a 7/1 ARM with an APR of 4.79%. 720+ fico credit score and 12 months PITI reserves required and other restrictions and conditions apply. The interest rate for a quick move-in home at Blossom Walk is 3.75% for a 30-year fixed rate loan with an APR of 3.79%. Payments include Principle and Interest. Tax, insurance, and HOA are not included. 680+ fico credit score and 6 months PITI reserves required and other restrictions and conditions apply. Subject to qualifying for financing, this is not a commitment to lend. Loan program is only available through the builder’s preferred lender. Rates subject to change without notice. The Olson Company reserves the right to make changes to prices, programs, features, floor plans, availability, scheduling, and delivery of homes, terms and conditions without prior notice or obligation. All photos and home square footage is approximate and pricing is effective at date of publication deadline. Housing is open to all without regard to race, color, religion, sex, handicap, familial status, or national origin. Licensed brokers and real estate agents are eligible to receive a 2.5% commission, to take advantage of this broker program, you must register your client in person on your clients first community visit to be eligible for commission. See broker registration form for terms and conditions. See Home Advisor for details. All rights reserved. DRE LIC #01877641.