"2 Over 1" Buydown Program - What is it and how can your buyers/sellers use it as a deal-saving tool?
Just wanted to share this loan tool that can serve as a powerful incentive for your buyers, and also a potential deal-saving tool.
A buy-down program is method you can use in your escrow where the seller pays a flat amount in concessions to reduce, or "buy-down" the interest rate for the buyer on their home.
In essence, it's sort of like the seller is giving credit from the proceeds of the sale to pay additional "points" for the buyer. But in the case of a buy-down program, it's actually full interest rate percentages, not points.
What happens is the buyer's interest rate gets reduced for the first couple of years, and then after those years are lapsed, the rate goes back to the original rate that they qualified for.
IT IS NOT A "FUNKY" ADJUSTABLE RATE LOAN that got us into this mess with the mortgage industry.
In fact, it is NOT a type of loan at all. The buyer can choose whichever lender and loan type that they feel comfortable with. The buy-down program is just a tool you use in conjunction with the buyer's loan of choice.
It is a legitimate tool that actually makes the payment that the buyer would normally qualify for just a little easier for the first couple of years.
It actually works great in a scenario where the buyer is going to be earning more money over the next few years, but are faced with what they can qualify for NOW based on their current income.
The most popular buy-down program that I have known is the 2-over-1 (2/1) buy-down program.
In this setting, the buyer's interest rate is reduced 2 whole percentage points (not points) for the first year, then during the second year the buyer's interest rate is reduced just 1%, then in year 3 the buyer's interest rate goes back to what it was originally.
For example, let's say you have a transaction with a purchase price of $675,000. Right now the buyer qualifies for a purchase price of $675,000 with an interest rate of 4.75%.
Here is a sample of what the numbers could possibly look like:
In this example, it's possible for the buyer to save between $600-$900 dollars per month!
Keep this option open for your buyers and sellers. It may just end up being the glue that holds your deals together, and it's a winning combination!
Talk to your local or favorite mortgage loan officer for details and options on a buy-down program.
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