Buy-down options

A buy-down 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.  Buy-downs 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 buy-downs: a permanent buy-down and a temporary buy-down.  A permanent buy-down lets you pay extra points to get a low interest rate over the life of your loan.

A permanent buy-down 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 buy-down with a difficult to sell property or during slower market conditions. It increases the buyer’s ability to qualify for a loan, therefore, allowing the home to be sold quicker.  Plus, a buy-down offer is usually less than a price reduction on the home.

In a temporary buy-down, you prepay interest in exchange for a lower rate during the early years of a loan.  The most common temporary buy-down 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 buy-down, the payment in years one and two is calculated at rates 2 percent and 1 percent below the loan rate. And on a 1-0 buy-down, the payment in year one is calculated at 1 percent below the loan rate.

A temporary buy-down can be a benefit to 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 buy-down appealing.

We need to discuss the permanent or temporary buy-down programs.  Permanent buy-downs put extra money in the lenders hands that can only benefit you if you live in the home for approximately 7 years.  Temporary buy-downs basically set up a borrower for higher payments in the second and third years, similar to adjustable rate mortgages, thus the interest rate over the life of the loan is higher than a regular fixed rate mortgage.  

Call me to see if these options may be right for you.  Sherry Bitner - 941-504-1445 Sherry@SherryBitner.com

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