QandAs: Loans

What is a buydown?

Answer:
It has become difficult for many people to find affordable

housing. This is primarily due to rising interest rates accompanied with high real estate costs. Fortunately, there are options available to borrowers. Mortgage buydowns have helped thousands of people purchase homes within their means.

With a buydown, home owners can enjoy either a lower mortgage payment or a lower interest rate on their home loan. This allows them to purchase a home without going broke. There are two types of buydown options available to buyers: a permanent buydown and a temporary buydown.

A temporary buydown is ideal for home buyers who don’t earn enough money to meet a lender’s requirements. This option reduces the monthly mortgage payment. However, to qualify for a temporary buydown, buyers have to pay an up-front cash deposit to their mortgage lender. The funds can come from the buyer’s personal savings, or the seller may offer to pay the deposit. The deposit temporary reduces the mortgage payment for a predetermined term.

The other option is a permanent buydown, wherein home buyers pay additional points to reduce their mortgage interest rate. Points are paid at closing, and the reduced mortgage rate remains the same for the life of the loan. This option is perfect for buyers with disposable cash.


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