Lower Your Mortgage Payment with 2/1 Buydown
Lower Your Mortgage Payment with 2/1 Buydown
Homes are sitting on the market longer than they have in the last couple of years. Prices are creeping downward. If you haven’t been successful in your homebuying journey, this almost sounds too good to be true.
Except… mortgage rates are peaking.
Just when it felt like homeownership was finally within reach…
Now it feels like you’ve missed your chance to hop on the property ladder.
Well, what if I told you there’s a way for you to buy a home sooner and have a monthly payment below today’s market rate?
Keep reading to find out how.
The Solution for Indianapolis Homebuyers?
There’s been a bit of chatter lately about a finance option called the 2/1 (or 2-1) buydown. While this isn’t a new program, it usually grows in popularity during seasons of high mortgage rates, just like what we’re seeing today.
Let’s dive in and see if a buydown is right for you.
What is a 2/1 Buydown on a Mortgage?
It’s a temporary drop in the market’s current mortgage rate. Ideally, this solution will allow aspiring homebuyers to get on the real estate market sooner despite the sky-high interest rates and temporarily lower their mortgage payments.
The 2 in 2/1 means that the rate will be 2% less than the locked-in market rate (also called the note) for the first year. The 1 in 2/1 means that the rate will go up to 1% less.
By Year 3, you would be officially at the rate that you agreed to 24 months prior. Hopefully by then, mortgage rates will go down. This would be an optimal time to refinance your mortgage, so you don’t have to stay at that high mortgage rate for very long.
What if interest rates go down while I’m still in my first 2 years?
That would be the perfect opportunity for you to refinance! That way you can enjoy a lower mortgage payment for good. The leftover money in escrow from the buydown would be refunded to you.
That all sounds great, right? If it sounds like a good option for you, let’s now go over what you can expect from a buydown program.
Is a 2/1 Buydown Actually a Good Idea for Homebuyers?
This program isn’t for everyone. It’s not a solution to lower a mortgage amount to fit your budget. Rather, it gives you a little breathing room for what is already affordable for you today.
The goal of this program is to save homeowners money on interest.
This is ideal for anyone who expects raises within the next couple of years to keep up with their increasing mortgage payments. Also, expect higher closing costs.
For more information, click here to talk to your friendly First Option Mortgage lender.
Basic Qualifications
- The home must be your primary residence. Investment properties do not qualify.
- You must have a FICO score of 680 or higher.
- Must be a fixed 30-year mortgage.
Is this a sign of a recession?
Not exactly.
Buydowns are designed to get you in a home today and hopefully wait out the high rates and refinance when the market stabilizes.
While this may all sound like a no brainer, the tough part is getting a seller or builder on board…
Why Should a Seller/Builder Consider a 2/1 Buydown?
At first glance, this seems like a rotten deal for the seller or builder. This could actually work in their favor. Before, due to record low rates, buyers were paying for homes over their true value. That phase has cooled off, and so have potential buyers.
Some sellers and builders may be able to wait for the right buyer to come along. Others are eager to sell. If a house has been sitting on the market for a while with no offers, a 2/1 buydown will increase the chances of selling property while retaining its true value.
Instead of dropping the listing market price on your house, you could instead offer to pay the interest ahead of time, which could cost a fraction of how much you’d have to drop the sticker price to receive any other offers.
For more information, talk to your local First Option Mortgage lender today.