United Wholesale Mortgage (UWM), a major lending company, is now offering free appraisals for some borrowers.

The perk is part of an oh-so-tempting 1-0 temporary rate buydown package, available to local mortgage consultants itching to help buyers break through the current housing standstill.

“So,” you ask… “What is a 1-0 buydown mortgage?” Successful loan applicants can hack 1% off whatever interest rate they locked in. They keep that discount for the first year of the loan. So, whatever the current rate is, cut that by 1%. If the rate is 8%, the borrower only pays 7%. After that first year, the regular rate kicks in.

UWM is putting some icing on the cake. It’s promising to pick up the tab for up to $600 in appraisal fees. Conventional and government-backed home loans can qualify. And the whole deal is good through March 31, 2024.

What Prompted The “Free Appraisal” Offer?

People are out there hoping to buy homes, but 8% mortgage interest rates are causing them to stand back and wait. This could be the case for a while. Economic experts from Zillow and several big banks think a critical mass of buyers will wait 2024 out, unless soaring interest rates can be brought down to Earth.

Meanwhile, mortgage rates are making loans hard to handle — and buyers are biding their time. It wasn’t long ago that rates were well under 5%. The current high loan rates are understandably off-putting to hopeful buyers.

True, rates seemed to peak in October, when they reached about 8.5%. But they have not declined very much at all. As of the time of this writing in late November 2023, a 30-year, fixed mortgage rate on a conventional loan can’t seem to stop nudging the 8% line.

Today, large lenders are looking for ways to attract business from local mortgage groups. Easing a buyer’s load a bit by covering the bill for the appraisal, UWM points out, is one way for a mortgage company to gain a “competitive edge” when seeking higher loan volumes.

What’s the Story on Temporary Rate Buydowns?

Borrowers who take advantage of temporary rate buydowns pay a low rate at the start of their mortgages. The price discount is covered by money deposited at closing time into the homeowner’s escrow account. Who pays that extra money into the escrow account? Usually a seller, or — as in this case — a lender.  

The United Wholesale Mortgage 1-0 buydown works like this. Someone who gets approved for a loan now will be able to send in a discounted amount for every month of the coming year. The regular payments won’t kick in until 2025.

This offer, says UWM, lets mortgage consultants offer low rates. By the time the higher monthly payments would kick in, maybe the prevailing rates will be better, and the borrowers will manage to refinance. That’s the potential that UWM is talking up right now.

In any case, these offerings attract buyers who want a low-stress year, financially, after they finally buy their homes. Buydowns can also shave off some of that heavy interest that a first-year owner has to pay.

Last year, UWM launched buydowns for Federal Housing Administration (FHA) and Veterans Affairs (VA) mortgages, and loans backed by Freddie Mac and Fannie Mae®. And then the company expanded its menu of buydown options.

We break down interest rate buydowns here.

Rocket Mortgage, loanDepot, and several other high-profile companies also give buydowns. Builders, too, understand the struggles buyers face with 8% rates. And some are tossing lifelines to mortgage applicants. So here we see rate buydowns alternatively being subsidized by funds from builders. Even the owner who conveys the deed could agree to fund a buydown.

How Long Will Mortgage Companies Be Making Offers Like This?

The United Wholesale Mortgage company believes serious measures are called for at least through March 2024. The company’s actions speak as loud as any words.

Beyond that, the future of financial markets is anyone’s guess. Some analysts are willing to predict that rates could be dampened and buying a home will get somewhat easier in late 2024 and into 2025.

Here are some predictions for the average rate on a 30-year, fixed mortgage in 2024:

• The Mortgage Bankers Association says we’ll start of 2024 with a rate just over 7%, and wrap up 2024 with mortgage rates a whole percentage point lower.

• The National Association of REALTORS® says we’ll start of 2024 with a rate around 7.5%, and end 2024 with rates down to about 6.3%.   

• Judging by the Fannie Mae National Housing Survey® and Fannie Mae’s spokespeople, we could start 2024 with a rate around 7.6%, then experience a “mild downturn in the first half of 2024” as household funds start to run low. (After all the high interest out there, no wonder!) Finally, mortgage rates will close out 2024 just over 7%.

• Goldman Sachs researchers expect elevated rates to last throughout the coming year. Listings on the market will then drop to “the lowest level since the early 1990s.”

Some analysts do think rates will come down significantly in 2025. That’s when Wells Fargo predicts the rate on a 30-year, fixed mortgage to get down to 5.7%.

If Wells Fargo’s predictions pan out, then things are looking better for buyers. The attractive mortgage incentives available now may not last long. On the other side of the coin, once mortgage rates do drop, the sidelined loan applicants will come back, wanting to buy. And whenever buyers show up in force, home prices rise. Alas! 2025 doesn’t promise a magical journey for homebuyers. And waiting for 2025 (especially while paying high rental costs) may not make sense to some buyers. For them, getting a buydown now might be just the ticket.

Famous Last Words?

High home prices are keeping too many hardworking people from becoming homeowners.

High interest rates are keeping too many current homeowners from having anything to do with the current market — even if they’ve love to sell.

Deeds watchers are getting impatient. And we feel for those small, local mortgage brokers who take pride in issuing life-changing mortgages.

Watching the industry do handstands to restart the housing market has to make an impression on the federal government. Maybe now, the Federal Reserve will decide enough is enough. And maybe it will finally cut interest rates in early 2024.

We’ll soon find out.

Please note: This article is not financial advice. Financial decisions are unique to every household and every individual, so please consult a financial professional for guidance through major financial decisions.

Supporting References

Molly Grace for BusinessInsider.com: Will Mortgage Rates Go Down in 2024? (Nov. 22, 2023).

Connie Kim for HousingWire, via Yahoo Finance: UWM to Cover Appraisal Costs on 1-0 Temporary Rate Buydowns (Nov. 15, 2023).

PRNewswire by Cision: Mild Recession Remains Likeliest Outcome as Inflation and Labor Markets Cool (news release from Fannie Mae®; 18 Sep., 2023).

Deeds.com: “Mortgage Companies Are Desperate” – What’s Next for Homes and Mortgages in 2024? (Oct. 30, 2023).

And as linked.

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