Tips For First-Time Home Buyer

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Издатель Oct 2, 2022

A buydown is a mortgage financing technique that allows for a buyer to obtain a lower interest rate for at least the first few years of the loan, or in some cases its entire life, in return for an extra upfront payment.

Either the buyer or the seller may cover the cost of the buydown.

A 3/2/1 buydown mortgage is one of these said products that starts out with a low interest rate and rises over the next several years until it reaches its permanent rate.

In a 3/2/1 buydown, the loan’s interest rate is reduced by 3% in the first year, 2% in the second year, and 1% in the third year. The permanent interest rate then kicks in for the remaining term of the loan starting on the fourth year.

This can be an attractive option for buyers who expect to have a higher income in the future, as well as for sellers who want to offer incentives to facilitate a transaction.

Over the first three years of the 3/2/1 buydown the lower payments can help buyers set aside money for other expenses like home repairs or remodeling, and when the loan resets to its permanent rate, the buyers will be left with certainty of knowing what their payments will be to budget accordingly or refinance if it makes sense to do so.

A potential downside to the buydown strategy is that it may lure buyers into buying a home they may not be able to afford when the rate resets. This is why it is important for borrowers to be well informed when planning to use this type of loan.

Where do you think the market is heading over the next couple of years? Drop your thoughts in the comments below!

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ANEURY EVANGELISTA
Associate Broker
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Aneury@rxpteam.com

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