Buydown options

By
Mortgage and Lending with Secure Mortgage Company

A buydown is a type of financing where the buyer or seller pays extra points (also called discount points) to reduce the interest rate on a loan. Buydowns make it easier to qualify for a loan because they lower a loan's interest rate. They can also allow you to buy more house for your money.


There are generally two types of buydowns: a permanent buydown and a temporary buydown. A permanent buydown lets you pay extra points to get a low interest rate over the life of your loan.

 A permanent buydown can be paid by the seller or the builder as an incentive to finalize a sale by creating lower monthly payments. Sellers can also benefit from assisting with a buydown with a difficult to sell property or during slower market conditions. It increases the buyer's ability to qualify for a loan, therefore, allowing the home to be sold quicker. Plus, a buydown offer is usually less than a price reduction on the home.

In a temporary buydown, you prepay interest in exchange for a lower rate during the early years of a loan. The most common temporary buydown is called 3-2-1, meaning the mortgage payment in years one, two and three is calculated at rates 3 percent, 2 percent and 1 percent, respectively, below the rate on the loan. On a 2-1 buydown, the payment in years one and two is calculated at rates 2 percent and 1 percent below the loan rate. And on a 1-0 buydown, the payment in year one is calculated at 1 percent below the loan rate.

 
A temporary buydown can be a benefit to a buyer whose current income is low but anticipates that it will increase during the next two years. First-time homebuyers who need to purchase all of the furnishings that go into a new home may also find a temporary buydown appealing.

 to see if using discount points would be right for you contact me at 713-623-5195 or www.securemtgonline.com/homepage

 

 

 

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Harry F. D'Elia III
RentVest - Phoenix, AZ
Investor , Mentor, GRI, Radio, CIPS, REOs, ABR

Thanks for explaining the buy down option this morning. There are times when this does make sense for the buyer when purchasing real estate.

Aug 24, 2009 01:18 AM #1
Rainer
19,753
Christy Hempel
Secure Mortgage Company - Katy, TX
Sr. Loan Officer

Harry- Your Welcome. As a loan officer i think an educated customer is the best customer. I try to help out with this as much as possible. Over the years i have handled lots of calls from customers that where using other loan officers and answered there questions. My website is built around this fact of educating buyers and sellers so they know what there getting into. sometimes dicounts are exactly what the customer needs and sometimes they are not.

Aug 24, 2009 02:43 AM #2
Anonymous
BarbaraQ

Christy- You are right! Seller-Funded Buydowns are a GREAT way for Sellers to Increase market potential and gain a competitive edge.

Buyers should appreciate the Discount in their interest rate...PLUS ... although the Seller pays points to Discount the rate, the Buyer is able to use the cost of the interest rate buydown as a tax deduction in accordance with IRS Revenue Procedure 94-27. (Must be a primary residence to Loan Amount up to $1 Million.)

Temporary Buydown calculator: http://www.321advantage.com/realtors-payment-calculators

 

Sep 18, 2009 08:02 AM #3
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Rainer
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Christy Hempel

Sr. Loan Officer
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