Today’s market continues to be geared towards buyers. Sellers are willing to do what it takes to make their home stand out in the midst of the rest. One way to make a home purchase appealing is through the 2-1 Buy Down program. This program offers the borrower a lower initial payment for a fixed rate loan. The loan terms are not adjustable and the rate cannot vary from the qualifying rate. The interest rate is 2% lower than the 30 year fixed rate for the first year. The second year the interest rate will be 1% lower than the 30 year fixed rate.

Here is how the 2-1 Buy Down program works.

The borrower’s must qualify for a fixed rate mortgage. The seller offers to pay for the 2-1 Buy Down program.

Borrowers loan amount is $200,000 at a rate of 4.75% 30 year fixed (qualifying rate) rate. The principle and interest payment for that loan is $1,043.29 monthly.

The interest rate is 2% lower than the 30 year fixed rate for the first year which lowers the interest rate to 2.75%. The payments for the initial year result in a savings of $816.48, saving the borrower $226.81 a month for the first 12 months of the loan.

The second year the interest rate will be 1% lower than the 30 year fixed rate making the interest rate 3.75%. The payments for the second year result in a savings of $926.23 saving the borrower $117.06 a month for the second year.
At the end of the second year, the interest will remain at the 30 year fixed rate of 4.75%. However, during the elapsed time the borrower has saved $4,126.44 within the first two years of the loan due to the Buy Down program resulting in a lower rate.

The seller pays a fee to participate in the 2-1 Buy Down program. In this example, the fee is just over 2% to the lender at closing. Sellers are willing to participate in this program because it allows an incentive to the buyer making the home pleasing to buyers. Buyers tend to benefit from this program more than buying down the interest rate with discounted points because most home owners do not keep their home for more than 5-7 years. This program is common with new home builders who can offer more incentives and set their homes apart from other sellers.

Contact me today to learn more about the 2-1 Buy Down program and find out if you and the seller will benefit from this program. The program is popular with both Conventional and FHA/VA loans and is a great way to maximize savings by structuring a home loan that fits your needs.