3 reasons to consider an interest-rate buydown if you're selling a home, according to a financial planner

The author, Anna N'Jie-Konte. Photo courtesy of Anna N'Jie-Konte

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• A slow real estate market is the most straightforward reason to consider an interest-rate buydown.
• If you're in a strong financial position and want to sell your home quickly, consider a buydown.
• If you anticipate selling to a first-time buyer, low interest rates early on can be an incentive.

These days, the economic climate and real estate markets are causing a lot of anxiety for sellers and prospective homebuyers. 30-year mortgage rates are close to 6%, far higher than recent years.

As a certified financial planner, I get a lot of questions from individual clients asking whether it's a good time to purchase real estate or if they should wait for interest rates to decline. People also ask whether they should sell and cash out on the appreciation of their real estate over the last few years.

Overall, I always advise folks to make decisions in accordance with their personal financial plan and follow that plan regardless of market conditions or economic climate. If selling some real estate is in your financial plan for 2023, though, then an interest-rate buydown, or seller buydown, might be worth offering.

There are three primary instances in which it makes sense to opt for a buydown.

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1. The real estate market is experiencing a slowdown

Interest-rate buydowns allow a seller to cover a portion of the buyer's monthly interest payments on their mortgage. The total cost of the buydown is funded at closing.

Many buyers are hoping for a sharp slowdown in the real estate market and a drop in home values to make purchasing more affordable. However, this has not been the case recently. If you are located in an area where homes are not selling quickly, offering an interest-rate buydown can entice potential buyers who are still on the fence.

2. You have the equity to cover your next down payment

If you have more than enough equity built up in your home to cover your next down payment, an interest-rate buydown will be less of a financial burden, especially if selling your home quickly is a priority.

If you're considering selling your home, think about how much you need to put down on your next home after considering transaction costs. If you're in a strong position financially, a buydown can be a great option for you. Since you don't need every extra dollar for your down payment, engaging in a buydown can potentially increase the speed at which your home is purchased for a relatively small upfront cost.

3. You're selling a 'starter home'

While most first-time homebuyers anticipate staying in their first home for several decades, many typically stay in their home for five to 10 years. In my experience, this is due to being at an early stage in their careers and earning less. These buyers have smaller down payments, which limits their home purchasing budget.

Given where interest rates are at the moment, most potential home purchase budgets have been significantly compressed, which is especially important for first-time buyers. By offering an interest-rate buydown, a seller can meet buyers halfway for the first few years and allow them to ease into a higher rate at a nominal cost.