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The Lowdown on the Buydown

someone signing loan papers with a buydown

The Lowdown on the Buydown: Let's Get Started!

With high-interest rates, a buydown presents a fantastic opportunity for selling homes. If you're not familiar with buydowns or have questions, we will break it down for you in this blog. Of course, specific input regarding your situation requires a trusted mortgage professional!

Permanent Buydowns:
  • Overview: These are payments made to permanently lower a borrower's interest rate, also known as points, origination fees, discount points, or lender fees.

  • Function: They compensate the lender upfront for lost commission from a lower-rate loan. These payments can be made by either the buyer or the seller.

  • Recommendation: Let’s consider an option for permanent buydowns—Temporary Buydowns.

Temporary Buydowns:
  • Overview: These buydowns involve creating an escrow account for the buyer (funded by the Seller), without any fees going to the lender.

  • Function: Imagine a borrower with a $500,000 loan at a 7% rate and a 3-2-1 buydown:

  • Year 1: Buyer pays $2,387/month; the escrow account covers $939/month.

  • Years 2 & 3: Buyer’s payments increase, and escrow contributions decrease.

  • Benefit: If the buyer refinances after 12 months, any remaining escrow funds reduce their principal balance.

  • Core Point: All benefits go to the buyer; no money is given to the lender.

Potential Challenges:
  • Issue: Buyers may only plan for the low initial payment, ignoring higher future payments.

  • Solution: Ensure buyers qualify for the highest possible payment, preparing them for future financial responsibilities. This approach allows time for potential wage increases and interest rate drops, enabling refinancing without losing benefits.

Need More Information? 

If you’d like to learn more about the value of buydowns in the home purchase process, let’s talk.

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Content by Remington Crispeno Team Seattle Realtors

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