Temporary Buydown Loan
Here is how it works....
The temporary buydown loan is a technique with which the homeowner gets a lower interest rate up to the first three years. In order to take advantage of this savings, a charge must be paid and this charge cannot be paid by you. The charge equates to the total amount you save during the temporary buydown period. This amount will be held in an escrow account to subsidize your monthly payment. In today's market, sellers are willing to pay for this.
3-2-1 Buydown
Lower interest rate for the first 3 years.
A buydown of 3% in the first year, 2% in the second year, 1% in the third year, then back to the original locked note rate in the fourth year for the duration of the term.
3-2-1 Buydown example
30-year fixed-rate with a $500,000 loan amount & an interest rate of 6% with an APR of 6.27%.
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Year 1:
- 3% interest rate
- $2,108 monthly payment
- $10,680 annual savings
-
Year 2
- 4% interest rate
- $2,387 monthly payment
- $7,332 annual savings
-
Year 3
- 5% interest rate
- $2,684 monthly payment
- $3,768 annual savings
-
Year 4-30
- 6% interest rate
- $2,998 monthly payment
- Save $21,780 in 3 years
- Buydown fee is $21,780
- Sellers credit must be $21,780
2-1 Buydown
Lower interest rate for the first 2 years.
A buydown of 2% in the first year and 1% in the second year, then back to the original locked note rate in the third year for the duration of the term.
2-1 Buydown example
30-year fixed-rate with a $500,000 loan amount & an interest rate of 6% with an APR of 6.27%.
-
Year 1
- 4% interest rate
- $2,387 monthly payment
- $7,332 annual savings
-
Year 2
- 5% interest rate
- $2,684 monthly payment
- $3,768 annual savings
-
Year 3-30
- 6% interest rate
- $2,998 monthly payment
- Save $11,100 in 2 years
- Buydown fee is $11,100
- Sellers credit must be $11,100
1-1-1 Buydown
Lower interest rate for the first 3 years.
A buydown of 1% in the first three years, then back to the original locked note rate in the third year for the duration of the term.
1-1-1 Buydown example
30-year fixed-rate with a $500,000 loan amount & an interest rate of 6% with an APR of 6.27%.
-
Year 1
- 5% interest rate
- $2,684 monthly payment
- $3,768 annual savings
-
Year 2
- 5% interest rate
- $2,684 monthly payment
- $3,768 annual savings
-
Year 3
- 5% interest rate
- $2,684 monthly payment
- $3,768 annual savings
-
Year 4-30
- 6% interest rate
- $2,998 monthly payment
- Save $11,304 in 3 years
- Buydown fee is $11,304
- Sellers credit must be $11,304
1-1 Buydown
Lower interest rate for the first 2 years.
A buydown of 1% in the first two years, then back to the original locked note rate in the third year for the duration of the term.
1-1 Buydown example
30-year fixed-rate with a $500,000 loan amount & an interest rate of 6% with an APR of 6.27%.
-
Year 1
- 5% interest rate
- $2,684 monthly payment
- $3,768 annual savings
-
Year 2
- 5% interest rate
- $2,684 monthly payment
- $3,768 annual savings
-
Year 3-30
- 6% interest rate
- $2,998 monthly payment
- Save $7,536 in 2 years
- Buydown fee is $7,536
- Sellers credit must be $7,536
1-0 Buydown
Lower interest rate for the first year.
A buydown of 1% in the first year, then back to the original locked note rate in the second year for the duration of the term.
1-0 Buydown example
30-year fixed-rate with a $500,000 loan amount & an interest rate of 6% with an APR of 6.27%.
-
Year 1
- 5% interest rate
- $2,684 monthly payment
- $3,768 annual savings
-
Year 2-30
- 6% interest rate
- $2,998 monthly payment
- Save $3,768 in 1 year
- Buydown fee is $3,768
- Sellers credit must be $3,768
Permanent Buydown
Lower interest rate for duration of your term.
A permanent buydown allows you to get a lower interest rate for the entire duration of the term. You will usually save more money with a temporary buydown loan, since it's rare to have a mortgage for three years or more.
Permanent buydown example
30-year fixed-rate with a $500,000 loan amount & instead of choosing a 6% interest rate you decide to take a 5.5% interest rate with an APR of 5.76%.
-
Year 1-30
- 5.5% interest rate
- $2,839 monthly payment
- Save $1,908 annually compared to a 6% interest rate
- Buydown fee is $3,785
- Sellers credit must be $3,785
*This program has different rules compared to the temporary loan. The buydown fee (aka discount points) is determined by the current market, which means it will flucuate daily. This can be paid for by a credit from the seller, developer, realtor, or you. The buydown fee is not held in an escrow account to subsidize your payment.
FREQUENTLY ASKED QUESTIONS
What interest rate is the homeowner qualified on?
The homeowner is qualified on the original locked note rate.
What loan products are a temporary buydown allowed on?
VA, Conventional, FHA, Jumbo, & other Non-QM loans only.
Can a temporary buydown be done on a second or investment home?
Yes it can be done on a second home, but no on an investment.
Who can pay for the temporary buydown loan?
A seller, developer, realtor, and the lender can pay for this charge. In order for a lender to issue a lender credit, you must choose a higher interest rate.
Can mulitiple parties contribute toward this charge?
Yes. For example the seller can pay 90% of it & the lender pay the remaining 10%.
Can a temporary buydown loan be done on an ARM?
Yes.
What if the mortgage is paid off during the temporary buydown period?
Any left-over money held in this escrow account will be applied towards reducing the balance.
Is there a minimum FICO score?
The minimum FICO scores are dependent on the loan product the homeowner is using.
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