There are many creative ways that buyers are creating the means to get into their dream home and buying down the interest rate is one of many strategies. Paying extra money in the beginning of the loan can be applied to lowering the interest rate on the entire mortgage. The interest rate buy down can be temporary or permanent depending on the expense and life of the loan. Generally a buyer will be attracted to a permanent rate buydown if they are planning on living in the home for at least three to five years. A temporary buy down may just be for the first year or could be structed to scale down over the first few years of the loan. This type of a buydown is called a 3-2-1 or sometimes a 2-1 buydown. In this case the first year's interest payment would be three percent lower, two percent lower the next year and so on. This helps make the payments more affordable early in the life of the loan in order to make the transition smoother. The reason we are seeing this more often is because buyers who have extra savings can come out of pocket in the beginning to improve their initial buying power for a home. As an additional incentive some sellers are even offering a credit back at closing that can be applied to a rate buydown. This creates a win-win situation for both parties because the buyer can afford to make a higher offer. I am working on a transaction right now that is utilizing an interest rate buy down and my buyers are very happy knowing the interest payment on the life of their loan will be cut significantly. If you have been looking to buy but think you cannot afford your dream home, talk with me today about how to get creative to make the deal work!
Keller Williams Realty Danville
CA DRE # 02108792