Buying Now vs. Buying Later: Benefit of a 2/1 Rate Buy Down with Examples

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A constant hot topic with buyers: is now the best time to make a move or is it better to wait?

I get asked this question so often that I wanted to take a moment to share a few scenarios around buying now and buying later. I’m going to review what these numbers might actually look like as well as the potential pros and cons of buying now, and what are we dealing with today, as of October 2023.

An important note: the market as a whole and its variables, like sales price averages, rates, et cetera are constantly changing. Your particular scenario may differ, these numbers are for the sole purpose of this example.

CURRENT MARKET + RATE

As of September, the median sales price in our area was $425,000 (Area: Northeast Florida - Jacksonville and surrounding counties). Let’s say taxes on this average property are $4,500/year, homeowners insurance is $1,500/year, and the interest rate is 7%. This would mean the current monthly mortgage payment is $3,532 for a 30-year mortgage.

Many buyers are waiting for interest rates to drop before pulling the trigger. However, when rates drop, many estimate that millions will jump back into the buying game. This means we will likely see a very “hot” market with multiple offers, homes selling for much higher than asking price, and no seller credits or concessions. It will feel more similar to the market we saw in 2020-2022. In this type of market, its common for buyers to pay for some of the seller’s costs, face quick-to-no inspection times, must buy the home as is, pay over the appraised value, et cetera.

Facing all of those crazy terms for a lower rate could actually be much more costly in the end.

NEW MARKET + LOWER RATE

As mentioned above, with multiple offers, it is likely buyers will purchase the home for over asking. In this scenario, that $425,000 quickly becomes a sales price of $475,000. Assuming the same taxes and insurance, but with a rate of 5.8% your monthly mortgage payment is $3,115 for a 30-year mortgage.

Yes, even with a higher price, and a lower rate, you do see a slightly lower payment. However, what if you have to contribute to the seller’s costs to buy the home (let’s say $5,000), may forego an inspection, and could not ask for any necessary, and often pricey, repairs. Is the $400/month savings worth it after having to also potentially dish out $7,500 - $10,000 at or immediately after closing?

CURRENT MARKET + RATE BUY DOWN

Instead, what if you bought now at a sales price of $425,000, received a market rate of 7% and then were able to receive a seller contribution for a 2/1 Rate Buy Down. This means in the first year, you are able to lock in a rate of 5%, which saves you $850/month (over $10,000+ for the year)! Then, in year two of your loan, the rate becomes 6%, which saves you $610/month ($7,000+ for the year) compared to the original 7% market rate. Finally, years 3 - 30 return to the market rate at the time of purchasing, so the 7% with a payment of $3,532.

CURRENT MARKET + RATE BUY DOWN + FUTURE REFINANCE

Now, what if you pursued the current market with 2/1 Rate Buy Down scenario, but then also explored a home loan refinance? In this scenario, say you protected a portion of those monthly savings in the first two years of your mortgage payments and put that toward a REFI (refinance) once rates are 1-2% lower than when the home was originally purchased. Now, because the sellers funded your 2/1 Rate Buy Down, and you just saved thousands of dollars per year, you’re not out any personal funds. Instead, you just saved thousands the first two years of your loan, and now with the market picking back up, you’re gaining equity and your home is appreciating yearly!

Every situation is different, and understanding the current market and financing options can feel overwhelming. If this piqued your interest and you want to learn more, reach out to us today! We’re happy to help you run potential scenarios or connect your with our preferred lender to understand your potential buying power.

Q2 2023: Local Pulse Quarterly Newsletter

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Wow, I can hardly believe we are over half way through 2023 already! Maybe its just me, but this year is flying by. I wanted to touch base and give you your quarterly update on our area for all things real estate and beyond! This year has definitely been interesting in the world of real estate. It seems to ebb and flow varying where exactly rates are, but one thing is for certain. The market is still moving.

 

YOUR MARKET UPDATE

Rates have fallen from where we started the year, which has triggered many buyers who were waiting for that exact moment. However, many continue to wait on the sidelines for rates to drop even more. Only time will tell if that will be the case -- more on that later.

Since rates have increased, we've seen inventory begin to level out. Homes are sitting on the market a bit longer than in the last two years, and buyers' purchasing power has changed simultaneously. But, believe it or not, on average, homes in NE Florida are on the market for 32 days. Additionally, home prices have jumped drastically. Many homeowners have gained enormous amounts of equity over the last three years.

When looking at the data coupled with higher rates, many believe prices will keep level or dip slightly as the markets slow down.

For those who are accidental landlords (or even not), if you're trying to time the market and max out on equity, now may be the time to sell. Leading into the next 12-14 months, close to election time, home prices are suggested to be at the top of the market. If rates do tick downward in next year's election year, which historical data since the 70's suggest will happen, I imagine we will see a small furry again. That furry containing those "waiting" right now, which means home prices likely take another jump between spring and summer, so fall of 2024 could be the sweet spot for maximizing equity.

 

WHAT‘S HAPPENING IN JACKSONVILLE?

DOWNTOWN

BEACHES

LOCO RELOCATION

  • Our city is certainly growing in all areas, and we have many people moving to our city and all around Florida. Over 300,000+ people moved to our state in 2022!

 

WHAT’S THE RENTAL MARKET DOING?

Overall, rentals are still moving in Jacksonville. However, many homeowners have been hit with a slight decrease in rental rates or rates staying the same based on the last few years of rates.

Here's why:

  • Many landlords offloaded homes in 2020-2022 in the hot market.

  • With this mass reduction, the rental market was squeezed.

  • Renters offered above the listed rental rate on many rentals.

  • Finally, like good ole supply and demand, the supply was low (due to homeowners selling their rentals) and rent skyrocketed.

A sad statistic, 30% of those homes were sold to select hedge fund investors (Wall Street Investors, not investors like you and me who own rental homes).

They automatically rented these homes, so new homes have re-entered the market, but they're owned, essentially, by Wall Street essentially.

Now, with inventory coming back and less owners selling, we have more rentals than we've had in almost 2.5 years, so the crazy pricing on rentals is also settling a bit.

 

WHAT CAN WE DO FOR YOU?

As always, we're, I am here to be your NE Florida Real Estate Expert + Go To Girl. Whether you are looking to sell, buy (more investment homes, or your own primary), or have real estate related questions, I am always here for you!

Don’t forget, we rebate back 25% of our gross commission to our community heroes. Military Members, Medical workers, first responders, teachers, and clergy. We’ve given back over $500k since our inception.

 

Curious what your home may be worth? Fill in your details HERE!

Care to learn more about our current listings, past buyers or take advantage of our cultivated tools, visit us at TheJordanGroupJax.com.

What’s Exactly Going on With the Real Estate Market

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I’m no economist. I don’t have a crystal ball. I can’t tell the future. However, I can study data and trends, educate myself, and analyze how both historical events and current market demands continue to feed the current world of Real Estate. For all disclosure purposes, this is my (Bailey’s) current state of the market prediction. Let’s dig in.

THE CRASH

Yes, we’re all well aware of the market crash that was 2008, but what happened after? Builders stop building, and people were hesitant to buy or sell real estate. Many people were most definitely under water on their homes, and even more folks couldn’t afford the home they purchased due to flimsy lending programs or being qualified for a home way beyond their livable means.

THE “RECOVERY”

Fast forward 10 years, we entered 2018. As mortgage rates hovered near 4 percent, the real estate market, for lack of a better term, was “recovering.” During this period of uncertainty, and due to the prior crash, many builders quite frankly just stopped building. However, our country’s population has continued to grow creating the need for readily-available housing options.

THE “NORMAL MARKET”

When mortgage rates ticked down even further into 2019, real estate entered a period of what many call a “normal market” with balanced inventory, a healthy amount of buyers, etc.

During this time, too, the largest generation currently on earth (#Millennials) entered the home buying scene. Then, this increased buying population entered 2020. Hello COVID, and our economy went crazy. Facing a global pandemic, our economy needed funds.

Did you know: in the state of Florida, each real estate transaction nets approximately $70,000? This profit is created from the documents, state tax, preparation, deed and doc stamps, title insurance and its preparation, movers, lenders, etc. of each transaction.

This is when the Federal Reserve intentionally reduced mortgage interest rates to stir a desire for people to purchase, so that our economy could keep moving at some level. With these low rates, home buyers could afford way more home than they ever could before.

LET’S REVIEW

Let’s quickly review some factors we’ve discussed contributing to recent real estate:

  • Builders stopped building new homes for quite a while after the prior crash.

  • A huge generation reached the home-buying stage in life.

  • Extremely low rates where families could afford more house than ever before.

These three factors truly spiraled into the insane state off the market we saw in 2020 through the first half of 2022.

THE COVID TIMES

It may be important to note that when COVID happened, many sellers were unsure what would happen both financially in their world and economically in our country. Many also did not want people in their home, touring and touching things with this unknown virus, and pulled their homes of the market.

Remember, at this time in the early pandemic, we were already at a shortage of inventory from the lack of building. Then, when sellers pulled resale homes off of the market, we faced a severe shortage paired with the three factors outlined above (lack of inventory, more buyers, more budget). This is what drove to crazy bidding wars, which then led to the wild terms people were forced to purchase under (no inspections, appraisal waivers, free lease backs to sellers, paying sellers closing costs, etc).

I always explained the situation to buyers like a favorite children’s game: musical chairs — we have one chair left at the end of the game, but two people are playing. This was essentially the market, but let’s multiply the pressure by about 10. In one case, we had one home in a neighborhood for sale and about 10-15 families were vying for it. Offers went well over asking price, giving the seller all the terms they wanted, and so on. The demand drove the cost of materials up as builders could not keep up, etc. This then contributed to inflation and other factors, too.

THE SHIFT

In July of 2022, the Federal Reserve attempted to slow homebuyer demand and control inflation by beginning to raise mortgage interest rates. They started slowly, but then increased rates between 6% - 7% by end of the year.

Now, let’s talk reality for a second. In true historical data, interest rates between 4% - 6% are healthy, normal and average. However, so many Millennial consumers today (up until last year) have seen rates at only 3% - 4% and are set that a rate any higher is soooo high. Mortgage rates at 2% - 3% were forcefully manipulated that low during a global pandemic, and they are likely to never return, or we may see the results of the prior frenzy return. The mortgage rates of late 2020 through the first half of 2022 are not true mortgage rates.

REAL ESTATE TODAY, EARLY 2023

Over the last several months, The Federal Reserve has slowly made a few reductions, and rates at this time, based on several factors (credit, loan type, location, etc.) are teetering between 5% - 7%. Home price averages have obviously increased, and with higher rates, it has affected the rate and ability for many families to purchase homes.

As we approach an election year, my personal studies and market research have shown that rates do in fact tend to drop prior to an election. It’s my educated guess paired with my personal expertise that we will see rates return to an average of 4% - 5% within the next 12 months. But, only time will tell!

Winter is Coming!

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As we approach the cooler months, it is advisable to knock out some winter home maintenance items around your house for both ongoing upkeep and safety!

We have been enjoying the hot summer months and a few brisk days of Fall (Florida does not participate much in Fall, sadly), these tasks can ensure your home is ready for the cozier, cooler days that we see in Florida.

  1. Have your HVAC Serviced/Heat System Tune Up

    Contact a professional HVAC technician to conduct a proactive servicing to ensure the heat part of your system is in good condition and no proceeding flags of a failing part is looming.

  2. Fireplace/Chimney Cleaning

    While many don’t utilize their fireplace or even have one in Florida, if you do, and intend to possibly utilize it this upcoming winter, it is recommended to get it cleaned prior to use, especially if you possibly purchased the home not too long ago!

  3. Check your Smoke Detectors

    Ensure your alarms are updated, fresh batteries, and are all in working order in case of an emergency!

  4. Tree Clean Up

    If you are located near a bunch of trees it is advisable to have your gutters cleaned after the leaves are don’t falling. This is also a Spring item.

  5. Window and Door Maintenance

    Check your window and doors for loose/torn weather-stripping and ensure there are no areas needing a fresh seam of caulk to keep air drafts out. You don’t want the heat escaping!

  6. Ceiling Fan Direction

    Don't Forget - When utilizing the heating system, it is advisable to have the ceiling fan rotate in the clockwise direction. This helps create an update that helps push warm air back down into the room.

    Lastly, on those really cold days or weeks, consider covering or storing your outdoor furniture. Wicker, plastic, and wood furniture can take a beating in the cooler weather. To help make them last longer, bringing them into an area such as a garage or placing a cover on them, can help extend their life expectancy while keeping them fresh and ready to break back out come Spring!

Five Ways to Beat Higher Interest Rates

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We get it! Rates are definitely higher than they were within the last 24 months. We have been asked many times, “Is now still a good time to buy Real Estate?” We cannot make that large decision for each person, but what we encourage each person to do is to evaluate the numbers and what works with their family, speak to a lender, learn about the process and responsibilities of being a homeowner (by sitting down with us), and make an informed decision.


Yes, rates are higher which will affect your buying power, but that does not mean you shouldn’t invest in Real Estate- which has proven to be one of the safest investments over time.

Here are five ways you can manipulate the current market rate to work better for you, should you decide homebuying is right for you and your family!


1) Buy Points:

This truthfully was even happening the last few years! You can buy what lenders call “points”, which reduces the total rate you pay. 1 Point = $1,000 per every $100,000 of your mortgage amount. Let’s take the purchase price of $200,000 for easy math. IF you purchased one full point (which you can do .25, .5, etc.), and you were quoted 6% for a mortgage interest rate, you would pay $2,000 at the closing table, and would reduce the rate to 5% which saves you Nearly $150/ month on your payment.

2) Continue to work on your credit.

The better your credit, the better the rate! Review your accounts, payment history, keep your revolving debt LOW, and try to avoid opening any new lines of credit when you are in the housing market.

3) ARM Mortgages


ARM mortgages (Adjustable Rate Mortgages) have been around for a while but were seldomly being used. They are used a lot for Jumbo Loans. With an increase in mortgage interest rates, many buyers are selecting an ARM option versus a fixed. The lower rate is offered to the buyer for the first part of the loan- typically somewhere between the 7–10-year mark, then a higher rate is taken on after that term.

4) Mortgage Buy Down


This option is VERY common right now and I would say is a mixture of both points and an adjustable rate in a sense. This type of buy down must come from the seller completely. The buyer is not able to pay for a formal buy down option. In this sense, the concession given by the seller- buys the buyers quoted mortgage down 2% the first year, and 1% the second year. The rate would then revert to the original quoted rate at the time of locking the loan. For instance, if the buyer was quoted a 6.5% rate and was utilizing this program, the buyer’s loan would become 4.5% the first year, 5.5% the second year, and then revert to the 6.5% for the third year through 30 (or 15 if it was a 15-year loan).
This option definitely provides THOUSANDS of savings to the buyer over the course of the first 24 months.

5) Gift Funds


Many loan programs do allow buyers to receive gift funds for down payment, closing costs, etc. There are also several grant and home loan programs for qualified individuals. We are always happy to advise of these programs in our buyer consultation or feel free to reach out for more. They do often change and have requirements (i.e., income requirements, industry requirements, etc.) but can always be a great option for those starting out needing assistance.