In most cases, temporary buydowns are paid for by the seller or a home builder as a closing cost in exchange for receiving the full price on their home. The buyer's interest rate is lower for the first couple of years due to a lump sum of money deposited into a buydown account. The buydown funds are then used to reduce the borrower's monthly payments. As a result, the borrower's rate and payments increase annually until the full note rate is reached at the end of the buydown period.
Buydown Options
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Buyer's have their "note rate" (the standard rate) reduced by 1% for the first year, and then it returns to the note rate after this first year.
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Buyers can ease into their monthly mortgage payments while having the reliability of knowing when their payments change, and sellers can use this in place of a price reduction, while getting more eyes on their listings.
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The interest rate is reduced by 3% in the first year, 2% in the second year, and 1% in the third year. After the buydown period ends, the lender will charge the full interest rate for the remainder of the mortgage.
Realize AnnieMac's Flexible Buydown Options
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- Conventional
- FHA Loans
- VA Loans
- USDA Loans
- Primary Homes
- Yes
- Yes
- Yes
- Yes
- Secondary Homes
- Yes
- No
- No
- No
- Paid Options
- Seller & Lender
- Seller & Lender
- Seller Paid Only
- Seller & Lender
- Minimal FICO Score
- 660
- 660
- 660
- 660
Benefits to Consumers:
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A reduced monthly mortgage payment for the first 1-3 years of their mortgage term.
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Savings as a result of the rate buydown could be reallocated to cover closing costs, down payment, home upgrades, or other expenses.
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Temporary buydowns give buyers the option to enjoy a lower monthly mortgage payment while waiting for the opportunity to refinance to a lower rate.
It may be hard to envision why a seller would want to buydown a borrowers rate. This is understandable given the nature of the program, but a temporary buydown does have benefits for the seller. In fact, sellers may use a buydown as an incentive for a future buyer to purchase their home due to how it will ultimately benefit them.
Consider This Example:
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- Year
- Rate
- Monthly Payments
- Second Year
- 2
- 5.5%
- $1,420
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