What is an interest-rate buydown? It’s a tool to help you qualify for a larger loan and purchase a higher-priced house than you could under normal circumstances. A buydown allows you to pay extra points up front in return for a lower interest rate for the first few years. The good news: the extra points are tax deductible. Often, people relocating for employment obtain buydowns because employers often pay the extra points as part of a relocation package.
Buydowns are a financing technique used to reduce the monthly payment for the borrower during the initial years of the loan. Under some buydown plans, a residential developer, builder or the seller will make subsidy payments (in the form of points) to the lender that "buy down," or lower, the effective interest rate paid by the home buyer.
While the most common way of obtaining a buydown is by paying extra points up front, many mortgage companies now increase the note rate to cover the cost in later years.
How does it work, and are there different types of buydowns? The most talked about buy downs in recent months due to the increase in interest rates are the 2-1 buydown and 3-2-1 buydown.
The most common is the 2-1 buydown, which oftentimes costs 3 additional points above current market points. It works like this: During the first year of the mortgage, the interest rate is reduced by 2 percent and 1 percent the second year. So if you get a 7 percent interest rate on a 30-year fixed mortgage, you’d pay 5 percent the first year, 6 percent the second year, and 7 percent for the remaining life of the loan.
Another option is the 3-2-1 buydown. This reduces the mortgage rate 3 percent the first year, 2 percent the second and 1 percent the third. Thereafter you pay the full rate. Just like the 2-1 buydown but for longer which means it will cost much more upfront to buy your rate down.
So what's the HYPE about; the biggest way to benefit from either one of these is to get the "SELLER" to pay for it. Go get you a Rockstar Negotiator of a Real Estate Agent....me if I do say so myself; to negotiate this in your offer. If there is a home that you've been watching and wanting but it seems like the numbers are just not working out; you just need to ASK. You won't know if you don't ask right. Are you with me here? Some sellers may be willing to buy your rate down to get their home SOLD. Stick with me here; another upside is if the rates drop down on the regular prime market to lets say a more desirable rate of 4.5% you can still refinance and lock that in for 30yrs and any money left in your escrow from what the seller paid can go towards your closing cost for your refi or you can put it towards your principle. It's a WIN WIN all around.
So stop crying about the current interest rates ( which overall are still not that bad) and do something about it; there's options out there and if you don't know what options you have and you are ready to buy some REAL ESTATE then get with a professional Real Estate Agent that can keep you in the know.
If you would like to learn more about the 2-1 or the 3-2-1 buy down fill out your contact info here and in your message put in "I'd like to learn more about the 2-1 buy down". And someone from my team will be in touch!
