What is a Temporary Rate Buydown?
What types are there?
How do they work?
A Temporary Rate Buydown lowers the interest rate at the start of the loan. It’s a great option for homebuyers who are going from renting to buying and want to ease into their mortgage with a lower payment.
Temporary Rate Buydowns are available for:
Conventional primary and second home purchases
FHA and VA primary home purchases
Prime Jumbo 30-year fixed primary and second home purchases
There are three Temporary Rate Buydown options:
3-2-1 buydown: A buydown of 3% in the first year, 2% in the second year, 1% in the third year, then back to the original locked rate in the fourth year for the duration of the term.
2-1 buydown: A buydown of 2% in the first year and 1% in the second year, then back to the original locked rate in the third year for the duration of the term.
1-1 buydown: A buydown of 1% in the first two years, then back to the original locked rate in the third year for the duration of the term.
1-0 buydown: A buydown of 1% in the first year, then back to the original locked rate in the second year for the duration of the term.
The buydowns are paid either by the Lender or the Seller through a closing cost contribution. (Note: if it is lender-paid, there is a massive rate adjustment).
In the spreadsheet below, there is a buydown scenario I calculated for a Buyer yesterday. This is not a loan offer but rather an estimate to show how it is calculated and how much contribution is needed from the Seller.
If you have any questions, call or message me today to learn more.
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