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Short Summary
Main recommendation: If you can afford it, put 5% down on a primary residence to get a lower loan-level price adjustment, then within the first 60 to 90 days make a bulk payment of the remaining 15% and request a recast, combined with a temporary buydown funded by seller credit (such as a 3-2-1 buydown) and working with a mortgage broker. The speaker frames this as a way to exploit a current pricing gap in the mortgage market, where larger down payments currently carry bigger rate adjustments.
Key Points
- Rates are currently hovering roughly between 6.25% and 7.5%, depending on credit score (FICO), down payment, and other factors.
- Recent loan-level price adjustments (LLPAs) penalize larger down payments: a 5% down payment carries about a 0.25 to 0.5 point adjustment, while 20% down carries about a 1.5 to 2 point adjustment.
- The strategy relies on the 5% down option being for a primary residence only, since 5% down is not available on investment properties.
- A mortgage broker can compare multiple lenders and access wholesale rates, which the speaker says are typically lower in points than retail bank loans.
- A temporary buydown (3-2-1, 2-1, or 1) lowers the interest rate for the first few years, after which the full rate applies for the rest of the 30-year term.
- Future rate direction depends on whether bank failures continue and whether the new Bank Term Funding Program (BTFP) restores investor confidence in mortgage-backed securities.
Details Worth Noting
- Concrete instructions:
- Put 5% down on a primary residence, not an investment property, to get the lower LLPA adjustment.
- Within the first 60 to 90 days of the mortgage, call the lender and make a bulk payment of the remaining 15% (the amount you originally planned to put down).
- Request a recast after the bulk payment so the monthly principal and interest payment is recalculated on the lower balance, reducing the monthly payment (and potentially removing mortgage insurance if you had it). Alternatively, you can apply the 15% to principal without recasting to shorten the loan and get ahead on payments.
- Work with a mortgage broker rather than a single bank loan officer, so they can compare lenders and find the best rate.
- For a buydown, negotiate seller credit to fund it (the speaker gives the example of a $500,000 purchase with 3% seller credit, or raising the price to $515,000 to get $15,000 in seller credit), and have the agent coordinate with the lender.
- If refinancing is possible within the buydown period, the remaining buydown funds may still be available to help cover refinancing costs.
- The speaker says a 3-2-1 buydown on a 6.5% loan would mean 3.5% in year one, 4.5% in year two, 5.5% in year three, and 6.5% from year four onward.
- The speaker notes this is not an adjustable-rate mortgage; it is a temporary buydown.
- The speaker notes the LLPAs were just announced this month, and lenders are already finding ways to help clients take advantage of them.
- The speaker describes a "core four" team (buyer's agent, mortgage broker, and others) working together to maximize savings.
- The speaker's rate forecast depends on the Bank Term Funding Program's implementation and whether bank failures continue over the next six months, with the next two to three months described as especially important.
Bottom Line
Current pricing quirks make a 5% down, recast, and buydown combination potentially cheaper than a conventional 20% down loan, but the approach requires a primary residence, seller-funded buydown negotiation, and a broker to coordinate it.
