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Your Guide to Help You Select the Right Buydown Program

Hello, If you're a buyer trying to purchase in today's market, you might have heard of a "rate buydown." But, you might be like most consumers and unsure how they work, which one to select, and why it would benefit you and your family. What Is a Buydown? A buydown is a mortgage financing technique with which the buyer attempts to obtain a lower interest rate for at least the first few years of the mortgage or possibly its entire life. A 2-1 buydown, for example, is a specific type of mortgage buydown that allows homebuyers to save on their interest rate for the first two years of the loan. Buydowns can also use a 3-2-1 structure as well. 3-2-1 Buydown? In a 3-2-1 buydown, the buyer pays lower payments on the loan for the first three years. For each of the first three years of the mortgage, the buyer's interest rate would increase incrementally by 1% annually. The total interest rate would apply beginning with the fourth year of the mortgage loan. While the buyer received savings from the lower interest rate in the first three years, the difference in the payments would have been made by the seller to the lender as a subsidy. 2-1 Buydown? A 2-1 buydown is structured the same as a 3-2-1 buydown; however, its discount is only available for the first two years. So you would have a 2% interest rate reduction for the first year of the mortgage, then a 1% discount for the second year. Your interest rate and monthly payments would increase until your loan reaches its actual percentage rate. This happens in year three of the loan. At this point, your monthly mortgage payment would reflect the real loan rate. You would pay upfront for the 2-1 buydown at closing; theoretically, the money you save over the first two years would cancel that payment. Temp Buydown Pros and Cons Whether it makes sense to use a buydown to purchase a home can depend on several things, including the amount of the mortgage, your initial interest rate, the amount you could save in interest over the initial loan term, and your estimated future income. How long you plan to stay in the home also can come into play in determining your break-even point. Pros * A buydown temporarily reduces your interest rate, saving money and lowering your monthly payments during the initial loan term. * Choosing a buydown may allow you to pay less for the home than the seller's listing price. * It could make sense for homebuyers whose income will increase in the years to come. Cons * Once the buydown rate ends, your monthly payment could be higher than expected. * You could struggle with monthly mortgage payments if your income doesn't increase.

Will Fed funds rate hike make buying a house more expensive?

It's our passion to educate people and give our real estate partners the most up to date data to share with their clients. The Fed is most likely increasing the funds rate in March. What does this mean and why are they finally raising the rate? How does it affect your budget? What happens to mortgage rates? How does it impact the housing market? Check out the great Cost of Waiting analysis which is a great visual for clients to see the true cost of waiting to buy a home.

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