Colorado bill would give tax credit for certain buydowns

A Colorado bill aims to encourage current homeowners to list their property and aid potential buyers by offering a tax credit to sellers paying for permanent interest rate buydowns.

The bill, HB24-1144, was introduced by Rep. Rod Bockenfeld, R.-Watkins on Jan. 30 and would apply to home sales between Jan. 1 of this year and Dec. 31, 2025.

If this were to become law as currently written, the credit is worth 50% of the cost of the buydown and is refundable and transferable to any other taxpayer.

Its purpose is to "improve industry competitiveness," the bill's language states. "Specifically, this tax credit is intended to incentivize property owners to sell their residential property in a way that benefits home buyers by reducing their mortgage interest rates and to stimulate the real estate market."

A recent Freddie Mac study found that 58.8% of borrowers who made a home purchase in 2023 did so with a permanent rate buydown, when the market was affected by high mortgage interest rates, as well as a continuing lack of inventory. This is compared with 31.3% during 2021, when mortgage rates were 3% or lower, and 53.6% for 2022, as they started to climb.

For Colorado, 58% of purchasers used a permanent buydown, similar to the national average, Freddie Mac noted. Hawaii had the largest share of buydowns at 77%.

Click n' Close is an Addison, Texas-based mortgage lender that offers programs targeting low and moderate income homebuyers, including allowing for seller-funded buydowns.

The Colorado proposal is a good idea, especially in the current market, said Jeff Bode, Click n' Close's owner and CEO. He has not heard of any other state doing anything similar.

"The way [mortgage-backed] securities are trading right now, no bond investor is willing to pay up for a higher interest rate because they're in fear of getting refinanced," Bode said.

Those discount points will drop the borrower's interest rate significantly and improve their cash flow, so "it's a great value to the buyer," he continued.

Mortgage rates, while down over 100 basis points from their October peak, are still significantly higher than many borrowers became accustomed to; this week's Freddie Mac Primary Mortgage Market Survey found the average 30-year fixed rate loan at 6.63%.

"A lot of borrowers and certainly the low to moderate income borrower do not have that money to pay out" for the points, Bode noted. The tax credit incentive is something "to get those rates low enough for first-time home buyers to be able to take advantage of it."

Planet Home Mortgage's lending area sales manager based in Denver thinks this bill will go a long way towards boosting the market.

"Anything the state can do to encourage homeownership and help make it within reach for more Colorado homebuyers is a welcome step," said Derrick Strauss. "Planet is excited to see new ideas that could have a positive impact on the housing market."