Learn how a Temporary Buydown helps BUYERS & SELLERS!

Designed to create more affordable payments in today's market

Get a 2-1 Buydown Rate Quote!

INSTEAD OF A PRICE REDUCTION, SELLERS CAN ”BUY DOWN” A BUYER'S INTEREST RATE

HOW DOES IT WORK
PAYMENT REDUCTION SCHEDULE
BUYDOWN VS PRICE REDUCTION
Making homes affordable

2-1 BUYDOWN BENEFITS

  • Alternative to sellers lowering the list price
  • Greatest way to reduce a buyer’s payment
  • Creates affordable monthly payments in times of higher interest rates
  • Works with traditional mortgages

What is a Temporary Buydown?

A buydown allows a borrower to obtain a lower interest rate, for a period of time, by prepaying some of the interest on the loan. Typically, the seller of a property provides a lump sum concession (prepaid interest) that is held in a custodial escrow account and applied each month to the borrower’s subsidized payment. The borrower may pay all or a portion of the buydown amount as well.

  • A 2-1 buydown lowers the interest rate on a mortgage for the first two years before rising to the permanent rate.
  • The rate is typically two percentage points lower during the first year and one percentage point lower in the second year.
  • A 2-1 buydown can benefit home buyers, provided they are able to afford the higher permanent monthly payments once those begin.

What’s the biggest impact on the buyer’s monthly payment?

Let’s take a scenario with an initial list price of $500,000 and a buyer obtaining a loan at 5.5% with a 20% down payment.*

Here are 3 ways to reduce a buyers payment:

1

2-1 BUYDOWN

Seller Cost = $8,632

Buyer Savings = $8,632 over 24 months.  -$474/mo for months 1-12, then -$244/mo for months 13-24

A $8,632 seller credit would buy down the rate from 5.5%* to 3.5% the 1st year and 4.5% the 2nd year, lowering the buyer’s payment –$474/mo for months 1-12, then –$244/mo for months 13-24. The total savings for the borrower is $8,632 in the first 2 years of the loan.

2

ONE-TIME RATE CREDIT

Seller Cost = $10,000

Buyer Savings = $4,416 over 24 months. $0 cash + $184/mo

$10,000 towards a one-time rate credit on a loan with the same terms might lower the rate by approximately 0.75%, saving the buyer -$184/mo

3

LIST PRICE REDUCTION

Seller Cost = $10,000

Buyer Savings = $3,080 over 24 months. $2,000 cash + $45/mo

A $10,000 price reduction on a $500,000 house may get attention, but it costs the seller $10,000 and only saves the buyer $2000 less down payment and only reduces the monthly payment -$45.

PAYMENT BREAKDOWN AND HOW LONG THE SUBSIDY APPLIES

2-1 BUYDOWN PAYMENTS*

2-1 Buydown payment breakdown

*5.500% has a 5.531% APR. APR is calculated using the actuarial method. Projected payments do not include taxes, other insurances, or HOA dues which will result in a higher monthly payment. Rate used was current as of 07/19/2022, but all rates and payments are subject to change.

Buydowns can apply for the first 1 to 3 years of a loan.

1/0 Buydown

  • Year 1, the interest rate is reduced by 1%, then the standard rate applies year 2 and forward.

2/1 Buydown

  • Year 1, the interest rate is reduced by 2%.
  • Year 2, the interest rate is reduced by 1%, then the standard rate applies year 3 and forward.

3/1 Buydown

  • Year 1, the interest rate is reduced by 3%.
  • Year 2, the interest rate is reduced by 2%.
  • Year 3, the interest rate is reduced by 1%, then the standard rate applies year 4 and forward.

Questions? Contact E5 Home Loans to learn more about buydown options or get a quote.

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