February Real Estate Roundup: Temporary Buydowns: A Savings Solution

Last month we talked about “dating the rate, marrying the home,” meaning that your clients who are waiting for rates to come down might consider the benefits of buying now, then refinancing later. 

Another way to make a rate more inviting is the temporary buydown, which lets your buyers reduce their interest rate for up to three years, before returning to their original rate for the remainder of the loan’s term. This allows them to save money or have time to advance in their job so they can afford higher payments when the buydown period ends. The lender, seller, or builder (not the buyer) subsidizes the cost at closing. 

Temporary buydowns are different than permanent buydowns, aka discount points. With points, buyers pay a one-time fee at closing to lower their rate for the life of the loan. But in certain market environments, temporary buydowns can actually make more sense than points. I’m happy to walk your clients through possible scenarios. 

See the Savings 

Let’s look at a hypothetical 1/0 temporary buydown*:

With a temporary buydown, the rate is 1% lower for the first 12 months. 

Examples are hypothetical and for illustrative purposes only. Monthly payments include Principal and Interest only. Actual payments and savings may vary based on individual client scenario. 

Your sellers can benefit from temporary buydowns, too. For example, let's say the buyer and seller are at an impasse over $7,000. The seller can pay for a 2-1 buydown on the buyer's $300,000 mortgage at a 7% interest rate, saving the buyer $6,992 over the first two years of the loan. The money comes out of the seller's proceeds at closing, similar to a price cut (but not for neighbors to see!). 

Finally, if you have a client under the 80% area median income (AMI), and a maximum loan amount of $350,000, Atlantic Bay has a brokered product with a free 2/1 buydown available, and your clients don’t have to be first time homebuyers. Also, if they qualify with just their base income, we don’t have to count overtime and bonuses for purposes of the 80% AMI. 

Temporary buydowns are for fixed-rate purchase only of primary residences, but they are available for all loan programs - Conventional, FHA, VA, and USDA. I’d love to talk to you and your clients about the temporary buydown’s advantages – just reach out! 

*USDA does not allow 1/0 buydowns. Buyers are not allowed to pay the buydown subsidy.  For VA loans, the seller must provide the full cost of the buydown.