rightBuydown options

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 on a property that is difficult to sell or during slower market conditions. It increases the buyer’s ability to qualify for a loan, therefore, allowing the home to be sold more quickly. 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. On a 1-0 buydown, the payment in year one is calculated at 1 percent below the loan rate.

A temporary buydown can benefit 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. 

 


 

 

Have questions about Buydown Options? Give Joe Wagner a call at 612-327-4544. It's his job to answer questions about Buydown Options, so he is happy to help! We know you're busy, so feel free to complete the form below to be contacted by Joe Wagner. 

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