By Corey Chambers, Founder of Entar Real Estate
In the world of real estate financing, non-warrantable condos often come with higher-than-market rates, making them less attractive to potential buyers. However, there’s a game-changing strategy that can help buyers secure a lower initial interest rate while making the property more appealing—seller-paid 2-1 buydowns.
What Is a Seller-Paid 2-1 Buydown?
A 2-1 buydown is a financing technique that allows homebuyers to enjoy lower mortgage payments for the first two years of their loan, thanks to a temporary interest rate reduction funded by the seller. This approach can make non-warrantable condos—typically seen as high-risk by traditional lenders—much more affordable in the short term and easier to sell.
Breaking Down the Numbers
Let’s consider a $700,000 non-warrantable condo purchase with 30% down and a credit score of 740+ for an owner-occupied unit. Without a buydown, the standard 30-year fixed rate would be 6.875% (7.124% APR), with a monthly principal and interest (P&I) payment of $3,219.
Now, let’s apply a seller-paid 2-1 buydown:
- Year 1: The interest rate drops to 4.875%, reducing the P&I payment to $2,593/month, saving the buyer $7,510.
- Year 2: The rate increases slightly to 5.875%, with a P&I payment of $2,899/month, saving the buyer $3,845.
- Total Buyer Savings Over Two Years: $11,355, which is covered by the seller at closing. This represents 1.62% of the purchase price—a significant upfront benefit for the buyer.
Why This Strategy Works
- Attracts More Buyers – Many potential homeowners hesitate to purchase non-warrantable condos due to higher financing costs. A buydown alleviates this concern by making initial payments more affordable.
- Encourages Sellers to Move Inventory – Sellers who offer a buydown create a compelling incentive for buyers, leading to quicker transactions.
- Allows Buyers to Refinance Later – With rates expected to trend downward over the next few years, buyers can refinance into a lower fixed rate when the market conditions improve.
- Minimizes Initial Payment Shock – The first two years are often the most financially demanding for buyers adjusting to homeownership costs. The buydown provides a cushion, allowing them to ease into their new mortgage.
A Winning Strategy for Non-Warrantable Condos
At Entar Real Estate, we recognize that creative financing strategies can be the key to unlocking opportunities in today’s market. The seller-paid 2-1 buydown is an innovative tool that benefits both buyers and sellers, making non-warrantable condos more accessible while keeping transactions moving efficiently.
If you’re considering buying or selling a non-warrantable condo, reach out to us to explore how this strategy can work for you.
Corey Chambers
Founder, Entar Real Estate
(888) 240-2500
Entar.com
Copyright © This free information provided courtesy Entar.com with information provided by Corey Chambers, Broker DRE 01889449. We are not associated with the seller, homeowner’s association or developer. For more information, contact 888-240-2500 or visit WeSellCal.com Licensed in California. All information provided is deemed reliable but is not guaranteed and should be independently verified. Text and photos created or modified by artificial intelligence. Properties subject to prior sale or rental. This is not a solicitation if buyer or seller is already under contract with another broker.
