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May 29, 2025May 29, 2025

Mortgage Buydown or Price Cut?

Deep Dive Real Estate Podcast: What’s better for affordability, a Mortgage Rate Buydown or a Price Cut?

In today’s housing market, many buyers face a frustrating dilemma: even when home prices hold steady, rising mortgage interest rates can push monthly payments beyond reach. What once felt affordable at 4% interest can suddenly become unattainable at 7%, pricing buyers out despite having the income and down payment ready. With affordability shrinking, buyers are forced to make tough choices, walk away, settle for less, or find creative ways to make the numbers work. Most agents and buyers will focus on negotiating the price down, but there is a powerful and often overlooked strategy that can lower payments and mortgage costs over time. Depending on your situation, the question becomes, Mortgage Buydown or Price Cut?

What’s Better: Mortgage Buydown or Price Cut?

A mortgage buydown is when the interest rate on your home loan is lowered in exchange for an upfront payment, often made by a seller or builder concession. The lowering of the interest rate will reduce your monthly mortgage payments. It’s a way to make home buying more affordable, especially when interest rates are creeping higher.

When negotiating a home purchase, many buyers zero in on one thing: price. But here’s a financial truth that can save you thousands. Sometimes the better deal isn’t a lower purchase price, but a lower interest rate. Take a look at this example:

Example 1: Let’s say you’re eyeing a $400,000 home and have 20% to put down. The seller offers you one of two options:

• Option 1: A $3,200 price reduction
• Option 2: A seller-paid buydown that lowers your 30-year fixed mortgage rate from 7.00% to 6.75%

At first glance, $3,200 off the price might sound appealing. But if you do the math, the mortgage buydown actually lowers the monthly payment more than the price reduction, AND can potentially lower the cost of the loan over time.

Savvy buyers should always ask the lender to work out both scenarios to see actual numbers. The right mortgage strategy can turn seller generosity into lasting savings.

The bottom line

In a market where sellers are willing to offer concessions, smart buyers don’t just ask for a discount, they ask for financial leverage. A mortgage buydown can be a smart way to lower monthly payments and make a home more affordable, especially in a high interest rate environment. It stretches your budget without needing to negotiate a lower purchase price.

For sellers, offering a buydown can be a powerful incentive that helps attract serious buyers without reducing the home’s value. In a competitive market, it’s a win-win strategy that keeps deals moving and both parties satisfied.

By Dan Krell
Copyright © 2025

Disclaimer. This article is not intended to provide nor should it be relied upon for legal and financial advice. Readers should not rely solely on the information contained herein, as it does not purport to be comprehensive or render specific advice. Readers should consult with an attorney regarding local real estate laws and customs as they vary by state and jurisdiction. Using this article without permission is a violation of copyright laws.

Homes for sale.

October 4, 2022October 4, 2022

Report mortgage fraud

The real estate industry, like other financial industries, has its issues with scammers and fraud. The appearance of new scams and new versions of old scams make mortgage fraud a continuing problem for the industry.

It’s not a victimless crime. You might think of those who are involved in a mortgage fraud scams as cheaters and criminals. However, it is not uncommon for innocent consumers to get caught up in a mortgage fraud scam. In the past, home flipping schemes ensnared unwitting consumers. During the great recession, mortgage modification and foreclosure rescue scams targeted unknowing homeowners.

The Federal Bureau of Investigation (fbi.gov) wants you to report mortgage fraud. The FBI describes mortgage fraud occurring “when someone lies to influence a bank’s mortgage decision or if a distressed homeowner is the victim of a fraud.” There are two types of mortgage fraud, fraud for profit (such as home flipping schemes), and fraud for housing (such as mortgage application fraud).

Application fraud is likely the most common mortgage fraud, as it can occur by any material misstatement, misrepresentation, or omission in relation to getting a loan. “Occupancy fraud” is when a borrower lies to get a better interest rate by stating they will occupy the property when it’s intended to be a rental property. “Employment fraud” is when a borrower lists an employer they don’t work for. “Income fraud” is when a borrower misrepresents their income to improve their profile for underwriters.

Among the many types of mortgage fraud, one takes advantage of seniors with home equity conversion mortgages (also known as reverse annuity mortgage). The FHA underwrites a HECM for borrowers who qualify when they become 62 years old. The HECM provides homeowners access to home equity without payment until the borrower moves or dies. Scammers obtain a HECM in the name of a recruited homeowner to convert equity in the homes into cash. The scammers keep the cash and pay a fee to the senior citizen or sometimes just take the full payout. Sometimes, appraisals are inflated. This type of fraud is more difficult to detect because the lender usually doesn’t discover something is wrong until the home owner dies.

The FBI works with partners to investigate mortgage and financial institution fraud cases. Report mortgage fraud to the FBI (https://www.fbi.gov/investigate/white-collar-crime).

By Dan Krell
Copyright © 2022

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January 4, 2021January 4, 2021

Negative Interest Rates Redux

Negative interest rates used to be a controversial topic. However, countries such as Japan and those in the European Union entered into the uncharted waters to stimulate their economies in the years following the Great Recession. Back in 2015 there was speculation that the US was headed into negative interest rates too. But those thoughts quickly vanished as the economy rapidly expanded after 2016. But with the prospect of more economic distress down the road with on-and-off again lockdowns and business restrictions, are negative interest rates on the table again?

What are “negative interest rates?” A very rudimentary explanation is it’s when interest rates go below zero. Meaning that instead of borrowers paying interest on loans, the lender pays the borrower. It may sound backward to what we are used to, but it is a “tool” that central bankers may employ in times of severe financial crisis.

Although many economists contend that negative interest rates are a viable short-term option to respond to a severe financial crisis, it is uncertain the policy works as intended. Negative interest rates expose a vulnerable economy to future financial downturns. Additionally, some are concerned about long-term deflationary effects, while others fear it results in hyperinflation. Some experts point to the potential of a paradoxical effect of freeze community lending. This can occur if investors hold onto their cash, instead of depositing it with banks for zero interest (or even having to pay the bank to hold their money). This lack of investment has the potential will reduce banks’ available capital to lend.

The possibility of negative interest rates in the US is once again a hot topic. A 2020 NAR report discusses this option (Expectations & Market Realities in Real Estate 2020-Forging Ahead; nar.realtor):

“There is nothing stopping the U.S. from moving into negative interest rates, but several issues would arise should the U.S. decide to take that plunge. One of the biggest fears is that the FOMC [Fed Open Market Committee] would not have any tools left to employ when the next downturn occurs. Global investors might lose faith in the safety of U.S. government bonds as negative interest rates and other forms of quantitative easing may be perceived as a sign of weaknesses in the economy. In addition, the portfolios of millions of U.S. investors would likely be hurt. According to the Office of Management and Budget, $16.8 trillion of the government’s $22.7 trillion debt is held by the public of the U.S. A large portion of the holders of U.S. debt are retired or soon-to-be retirees who have their portfolios in risk-free U.S. Treasurys. Many federal programs, including Social Security, Medicare and Medicaid, are also heavily invested in Treasurys, meaning these public programs would most likely lose money on the aggregate due to negative interest rates.”
(Expectations & Market Realities in Real Estate 2020-Forging Ahead; nar.realtor)

Could we see negative interest rates in the US?

In their recent statement of the FOMC (federalreserve.gov), the Federal Reserve believes that although economic activity and employment are recovering, the health emergency has caused a tremendous human and economic hardship in the US (and globally as well). If extraneous events are unchanged, “Overall financial conditions remain accommodative, in part reflecting policy measures to support the economy and the flow of credit to U.S. households and businesses.” However…“The path of the economy will depend significantly on the course of the virus. The ongoing public health crisis will continue to weigh on economic activity, employment, and inflation in the near term, and poses considerable risks to the economic outlook over the medium term.”

Original published at https://dankrell.com/blog/2021/01/04/negative-interest-rates-redux

By Dan Krell
Copyright © 2021

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October 7, 2019November 23, 2021

Housing Finance Reform Time

Earlier this year, President Trump released a memorandum indicating the need to reform the current structure of housing finance. Although some believe this initiative is a distraction, the reality is that housing finance reform has been in the government sights for years. In fact, the current state of mortgage markets was only meant to be a temporary fix after the financial crisis of 2007.

Housing finance reform has been a popular political subject for years. Even before the financial crisis that resulted in the Great Recession, housing finance reform was front and center as a means to increase homeownership. However, it wasn’t until after the financial crisis that touched off in late 2007 that Congress saw the need to make immediate major reforms to the mortgage industry. Although a strategy was mapped out, not everyone agreed on the plan.

One of the first steps taken by Congress was passing the bipartisan Housing and Economic Recovery Act of 2008 (HERA). The purpose of HERA was to be a comprehensive attempt addressing the identified problems and concerns (at that time) that caused the financial crisis. HERA created the Federal Housing Finance Agency (FHFA) to provide oversight of the Government Sponsored Entities (GSE). Among the goals set by HERA was to “modernize” FHA and reduce Fannie and Freddie’s role in mortgage markets. The fate of Fannie and Freddie has been debated ever since.

The subsequent government takeover of Fannie and Freddie all but froze out any private participation in the mortgage markets. A 2010 CBO report indicated that 90 percent of all mortgages were owned by Fannie Mae, Freddie Mac, and Ginnie Mae. Some estimate government’s involvement has been much higher when including FHA and VA loans.

Fast forward to March 27^th 2019, when President Trump issued a memorandum on the urgency of housing finance reform. Although the memorandum provides a rationale to change the system, the timing couldn’t be any more ideal (to help a seemingly plateaued housing market). The President’s push for reform acknowledges the dominant role of the GSE in mortgage markets without much competition from the private sector. The plan is to reduce taxpayer risk by expanding the private sector’s role. Furthermore, the goal is to “modernize government housing programs, and make sustainable home ownership for American families [our] benchmark of success.”

On September 5^th, the Treasury Department submitted its plan on housing finance reform. The pan, as described by a Treasury press release (Treasury Department Submits Housing Reform Plan to President; treasury.gov) “includes nearly 50 recommended legislative and administrative reforms to define a limited role for the Federal Government in the housing finance system, enhance taxpayer protections against future bailouts, and promote competition in the housing finance system.”

Although the result of HERA was a government monopolized housing finance industry, it was not the intention. Housing finance reform means returning to a competitive market that includes the private sector. However, it does not imply the end to government participation. Prior to the financial crisis, the competitive mortgage industry helped a record number of home buyers achieve homeownership. Reforming housing finance markets is key in returning to a stable and reliable housing market across all sectors and price points. Housing finance reform will increase homeownership opportunities for those who have struggled with the prospect of buying a home. And of course, home sellers will benefit from increasing numbers of home buyers entering the housing market.

Original article is located at https://dankrell.com/blog/2019/10/07/housing-finance-reform-time/

By Dan Krell
Copyright© 2019

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February 3, 2019November 23, 2021

Identity protection real estate

Even with precautions and laws to protect your sensitive data while conducting financial transactions, there can still be a weak link in the chain that can put your personal data at risk. You may not have heard about the latest data breach, but it involved the potential leaking of over 24 million mortgage documents. Identity Protection during the real estate process takes awareness and vigilance. However, what do you do after the transaction is over?

The data breach to which I refer was discovered and reported by Bob Diachenko, Cyber Threat Intelligence Director of Security Discovery with the assistance of Zack Whitaker of Techcrunch. This data breach was discovered by Diachenko just by searching public search engines. According to Diachenko’s report (securitydiscovery.com/document-management-company-leaks-data-online), the unprotected database contained about 51 GB of credit and mortgages information. The database potentially exposed more than 24 Million files.

Essentially, the over 24 million unprotected records (24,349,524 according to Diachenko) that existed on the database were likely scanned (OCR) from original documents. Diachenko stated, “These documents contained highly sensitive data, such as social security numbers, names, phones, addresses, credit history, and other details which are usually part of a mortgage or credit report. This information would be a gold mine for cyber criminals who would have everything they need to steal identities, file false tax returns, get loans or credit cards.”

Diachenko and Whitaker tracked down the owner of the database and found that the exposed database belonged to a third party. After the database was secured, however, Diachenko found a second vulnerable server that contained original documents.

How is consumer iinformation handled through through institutional real estate transactions?

According to Whitaker, the documents date as far back to 2008, possibly further. The documents concerned “correspondence from several major financial and lending institutions” including government entities such as HUD. Whitaker stated that not all data was “sensitive,” however the database included: names, addresses, birth dates, Social Security numbers, bank and checking account numbers. They also found some documents that contained other “sensitive financial information,” such as bankruptcy and tax documents, including W-2 forms.

To understand the broader implications of identity protection in a real estate transaction, read Diachenko and Whitaker’s first (techcrunch.com/2019/01/23/financial-files) and second (techcrunch.com/2019/01/24/mortgage-loan-leak-gets-worse) report. The reporting of Diachenko and Whitaker is significant because it exposes how your identity and sensitive information can be mishandled in the broader financial transactional process that occurs between entities. Even though direct correspondence with you may be encrypted and secure, security lapses can occur during the institutional transaction process (such selling and/or transferring a mortgage)

The moral of the story is that once your information is out of your hands, you cannot assume it’s 100 percent secure. Even blockchain technology, which has been touted as a safe means of digital data management, has weaknesses. And as governments and financial institutions are looking to blockchain as the “answer” to data security, there are reports of “attacks” of increasing sophistication according to James Risberg (Yes, the Blockchain Can Be Hacked; coincentral.com; May 7, 2018).

Take your identity protection seriously when buying and selling a home

Be vigilant and proactive to protect your identity and sensitive information. Be wary of unsolicited requests for information, even if it appears to be from someone with whom you are conducting business. Always make a call to confirm the request. Consider a credit freeze to prevent fraudsters from opening credit accounts in your name. Check your credit report regularly and dispute errors. If you’ve been a victim of identity theft, the FTC’s IdentityTheft.gov site can help you report it and create a recovery plan. You can learn more about protecting yourself from identity theft from the FTC (consumer.ftc.gov) and the Federal Reserve (federalreserveconsumerhelp.gov).

Original published at https://dankrell.com/blog/identity-protection-real-estate

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