What is a Temporary Buydown?Have you recently been home shopping? If so, you might have heard the term "temporary buydown". As a seller, you could have heard of it being utilized as a strategy to aid in the sale of your home.
There seems to be an increased interest in temporary buydowns in today’s market. But what are they?
A temporary buydown is when the interest rate on your loan is temporarily reduced, commonly for the first few years of the loan.
A buydown may be funded by either the borrower or seller. For instance, we only offer seller-paid buydowns. In a seller-paid buydown, the seller covers the difference between what the buyer’s monthly payment typically would be and the reduced rate.
(If you are a buyer interested in reducing your interest rate, you may be able to purchase “points,” which allow you to pay more upfront in exchange for a lower interest rate.)
Buydown funds are an upfront, cash deposit. A portion of the funds is released from an escrow account each month, allowing the lender to temporarily reduce the buyer's interest rate and monthly payments.
We offer eligible borrowers 2-1 and 1-0 temporary buydowns.
- A 2-1 Buydown reduces the note rate by 2% the first year, followed by 1% the second. The non-reduced rate applies years, 3-30.
- A 1-0 Buydown reduces the note rate by 1% the first year. The non-reduced rate applies years, 2-30.
- Eligible borrowers must still be qualified at the final note rate.
Benefits to the Seller
- Avoid reducing the home’s list price by offering a temporary buydown, which provides an incentive to buyers and can be a less costly option.
- Can make your home appealing to more buyers, especially in a higher-rate environment
- Provides a lower initial interest rate with the stability of a fixed-rate once the buydown period ends.
- Ideal for buyers who plan to have higher earnings within a few years of purchasing since the rate will increase.
- Save more money up front and use the extra cash for necessary repairs, small renovations, or other home expenses.
Discount points are used to buy down the interest rate for the life of the loan. Temporary buydowns will only lower the rate during the buydown period. Once the buydown funds run out, the buydown period ends and the original note rate applies.
Contact one of our Loan Officers for more information on temporary buydowns and how they could benefit you!
The information contained herein (including but not limited to any description of Advance Financial Group, its affiliates and its lending programs and products, eligibility criteria, interest rates, fees and all other loan terms) is subject to change without notice. This is not a commitment to lend.
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