How does a 2-1 Rate Buydown work?

During the past couple of years, the housing market has been red hot and buyers often had to pay well above the asking price to have their offer accepted. Additionally, the transaction was all on the seller’s terms. And while the housing market is still strong today, it has cooled off, giving buyers the opportunity to negotiate better prices and terms.

Although buyers have more negotiating power today, mortgage rates have risen. One way to navigate through this time is to use a program called a 2/1 buydown, which offers lower interest rates for the first couple of years.

Why would a seller agree to a seller credit?

Instead of negotiating a lower price from the seller, you can request the seller to pay the cost of a 2/1 buydown. This gives you the opportunity to get the home of your dreams at a payment that is much more affordable, with the possibility to refinance in the future at a more attractive rate.

Why Sellers Like This Deal:

  • Speeds Up Sale: Homes can sell faster in a buyer’s market when seller credits are offered.
  • Cost-Effective: Offering credits can be less costly for the seller compared to reducing the price.
  • Supportive Gesture: Providing financial assistance in this way helps buyers adjust to homeownership, showing goodwill.

Benefits for Buyers:

  • Lower Initial Payments: Enjoy lower payments at the start, without affecting your loan’s standard amortization.
  • No Increase in Loan Amount: The loan progresses as usual, just with lower payments initially.
  • Ideal in Rising Rate Environments: Secure a lower payment early on, which can be beneficial if rates are climbing.

Calculate your savings with our 2-1 Buydown Calculator

2-1 Rate Buydown: How it Works

Our new 2-1 Buydown Program reduces your interest rate by 2% the first year of the mortgage, by 1% the second year of the mortgage, and returns to the original rate at which the loan was locked the third year. With a 2-1 buydown, buyers have reduced payments for the first two years of homeownership.

  • If your normal rate is 5.75% (as an example)
  • YEAR ONE: The rate would be 3.75%
    (payment is based on this rate for the first 12 months)
  • YEAR TWO: The rate would be 4.75%
    (payment is based on this rate for months 13-24)
  • YEAR THREE: The rate would be 5.75%
    (payment is based on this rate for the remainder of the term)

Eligibility and Program Details:

  • All standard product types are eligible, including Conventional, FHA, USDA, and VA programs. 
  • Only available for purchase loans 
  • Fixed-rate only 
  • Single-unit properties only 
  • Loan types not eligible: Investment properties, refinance, HomeReady, Home Possible, construction, and renovation. 
  • Additional terms and conditions apply.

To navigate these challenging financial times with ease, consider the benefits of a 2/1 buydown. Contact us today to see if you qualify and to explore how much you could save. This could be your first step toward making your dream home a reality under terms that make sense for you.

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