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Buy That Mortgage Payment Down, Sellers Help Your Buyers Get Motivated!!

Mortgage and Lending with Florida Energy and Air Services

What is a 2-1 Buydown Mortgage?sold house

This mortgage is a 30 year fixed product.  It is not an adjustable rate mortgage.  This type of mortgage gives the potential borrower the means to have the first two years of their mortgage at a reduced payment.  Think of it as a subsidy for the borrower that is placed into an escrow account with the lender.

The subsidy would work like this:

The buyers have been approved for a mortgage at $150,000 with an interest rate at 6.5%. Their principal and interest payment on this mortgage would be $948.10 a month.  Let's assume that any one of these scenarios involves the potential buyers.  They are expecting a baby and are concerned about the loss of income.  They are wanting to upsize but are afraid of the increased payments or what the escrows may adjust to.  And finally they may be anticipating a raise and want to buy now while home prices are still low.  Their mortgage person has recommended a 2-1 buydown mortgage.   The 2-1 refers to the fact that the first two years the mortgage interest rate will be reduced by 2% the first year and 1% the second year.  The remaining 28 years the mortgage will be the 6.5% interest rate fixed.  So for the first year the payment is $760.03 for the first 12 months based on an interest rate of 4.5% amortized 30 years at a loan amount of $150,000.  The second year the payment will be $851.68 for the second 12 months based on an interest rate of 5.5% amortized over 30 years on a loan amount of $150,000.  The remaining 28 years will be a fixed payment of $948.10.

So how will this benefit Sellers?

If a seller offers the 2-1 buydown and the same buyers are looking at two homes in the same area and one seller has offered this program and the other seller hasn't it could mean the difference in getting the home sold.  In offering the 2-1 buydown the sellers are offering to subsidize the difference between the actual 30 year payment and the two payments from the first two years.  This amount for the first year is $2256.84 and for the second year is $1157.04.  For a total of $3413.88 that will be put into escrow at closing to make the payments lower the first two years.  This money comes from the proceeds of the sale.

How will this benefit Buyers?

The buyers are undecided on if they should purchase.  They are afraid of making the leap of faith to purchase.  You offer them the 2-1 buydown as a way to ease their minds and hearts that NOW is the perfect time to BUY.  The buyers will additionally gain a tax deduction from the 2-1 buydown as well as if they sell before the 2 years they will receive a refund of the portion left.  Rates have never been lower and there are some great deals out there.





Bill Baptista
Columbus, OH
Marie,  This is very valuable information for agents as well as sellers, especially in this market.  With this knowledge/info deals can be made that were not previously possible. Awesome, just awesome!
Dec 12, 2007 06:39 AM