Dave Ramsey reveals key mortgage advice for American homebuyers

The housing market has been challenging for first-time homebuyers to navigate over the past several years. Rising home prices, sticky mortgage rates, and dwindling housing inventory have dampened buyer demand and deterred sellers from listing homes.

Lack of affordability is the main barrier to homeownership for most Americans, but there is a way for homebuyers to get competitive mortgage rates below the market standard.

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Lenders offer buy-down deals, where the mortgage rate is discounted for one to three years in exchange for an upfront payment. If buyers can get the upfront cost covered, they can save thousands of dollars.

Best-selling personal finance author Dave Ramsey explains the fine print of mortgage buy-downs, when buyers should take advantage of them, and when it’s best to steer clear.

Dave Ramsey explains how sellers can use mortgage buy-downs to entice homebuyers

When mortgage rates surged in 2022, homebuyer sentiment dropped and has yet to return to its previous levels. However, most homebuyers — particularly millennials and Gen Z —would be motivated if mortgage rates fell below 6%.

Although mortgage rates may inch toward 6% over the next two years, considering a mortgage buy-down may be an option for buyers seeking a discount now.

As housing inventory rises to pre-Covid levels, sellers have become more incentivized to sell their homes quickly, and offering a buy-down is an easy way to close a deal. 

Mortgage buy-downs are discounts offered over a few years in exchange for an upfront payment, typically covered by sellers or builders. Ramsey outlines why buy-downs have become more common in this housing market.

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“Sometimes, a seller will offer to pay for a buy-down so their listing will have a little icing on the cake,” he wrote. “After all, getting a one, two, or three-year discount on payments is a pretty great perk! Builders will also sometimes pay for mortgage buy-downs to entice buyers to purchase newly built homes in brand-new developments.”

While it may seem like a win-win for both sides, homebuyers may want to proceed with caution. A reduced mortgage rate is given in exchange for prepaid payments, meaning that someone will be fronting the cost.

Dave Ramsey highlights when homebuyers should explore mortgage discounts 

Although sellers had the upper hand in the housing market for the past few years, buyers are regaining negotiating power as more sellers list their homes. Sticky mortgage rates have kept many would-be homebuyers on the sidelines, and sellers are offering more price cuts and deals.

Ramsey explains when a buy-down is a great deal, and when homebuyers should pass on the offer.

“If a seller or builder is paying for it, then a mortgage buy-down is definitely a good idea. In that situation, you’d get a discount on your house payments for three years with no extra fees or strings attached,” he continued. “That’s free money! Aka a really good deal.”

Related: Dave Ramsey predicts major mortgage rate changes are coming soon

Almost a quarter of all Zillow listings had price reductions in March, meaning that negotiating a lower home price is another option for homebuyers. If a seller is unwilling to pay for the buy-down cost, it’s not beneficial and won’t help bring down costs.

“But if you have to foot the bill for the buy-down, you’ll want to be far, far away from that!”

“Why? Because a mortgage buy-down isn’t a very good deal if you’re the one paying for it,” Ramsey explained. “It’s not even a discount at that point — all you’re doing when you get a buy-down is pre-paying for your mortgage.”

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