Friday, November 4, 2022 / by Rachel Green
With interest rates creeping around 7%, buying a home can be more expensive, but there's great news! There are programs that help you get a lower interest rate, and the costs for such can often be paid by the seller. These programs are referred to as rate buydowns. So, with buyer competition low and the option to get a great rate, buying a home just got a whole lot more attractive!
Since we're not lenders, so we asked Travis Carter of First Colony Mortgage to fill us in about rate buydowns.
SLH: What is a rate buydown?
Travis: A rate buydown is a prepayment of interest on a mortgage for the first two or three years, depending on which option you choose. This means you get a lower payment for the first two to three years of your loan.
SLH: What options are there to choose from right now?
Travis: There's a 2-1 buydown and a 3-2-1 buydown. The 2-1 buydown give you a lower rate for the first two years, with the buydown rate typically two percentage points lower during the first year and one percentage point lower the second year. The 3-2-1 option is over three years, with the rate being three percentage points lower the first year, two the second, and one the third.
SLH: What happens to the prepaid interest if I sell my home before the two or three years is up?
Travis: Great question! If you sell or pay off your loan before the buydown funds are used, the remaining funds are credited to you.
SLH: Who pays for the buydown?
Travis: The buyer or the seller can contribute to the rate buydown. If the seller is contributing, there are limits, but it depends on the program.
SLH: Are rate buydowns limited by income or other qualifications?
Travis: The qualifications for the buydown are the same as for the loan program without the buydown.
SLH: Cool. How do buyers apply for these programs?
Travis: You can call me at 801-360-2375 or apply online at http://travisfirst.com/.
See homes with Buydown costs offered by the seller. *Some limits apply.