What is a 2/1 Temporary Buydown?
A temporary buydown enables a portion of the borrower’s monthly Principal and Interest payment to be subsidized with a Seller credit and decrease their monthly payment for the first two years. The temporarily decreased payment allows borrower to free up cash-flow for moving expenses and or other transitional expenses.
Borrower payments for the first year are based on the Note Rate minus 2%; Payments for the second year are based on the Note Rate minus 1%; all other payments are fully amortized at Note Rate starting on the 3rd year.
The purchase agreement must list a percentage or dollar amount of credits the Seller is willing to contribute toward closing. That percentage or dollar amount must be enough to cover the temporary buydown subsidy and the amount counts as interested third-party contributions. Any excess Seller credits maybe used toward closing costs.
The Seller and Borrower must sign a Buydown Agreement at the time of loan submission and a final agreement will be signed at closing.
Benefits to Borrower(s):
- First year payments Note rate minus 2% and second year Note rate minus 1%
- Significant monthly savings for the first two years
- Third year payments resume at Note rate
- Great way for Borrower(s) to use any excess seller concessions
Benefits to your client and Real Estate Partner:
- Borrowers have more financial flexability during the first two years in a new mortgage
- Assist real estate agents and seller by providing an additional negotiation option and may allow more offers to be accepted
- Seller Paid Temporary Buydown only
- Minimum FICO of 620
- Primary Residence Purchase only:
- 1-2 Unit site built*
- 1 Unit Second home*
- Manufactured Homes (Single and Multi-Width) – available on FNMA only
- Fixed rate 30-year
- Qualify at the Note rate
- Available in combination with the following Conventional programs:
- FNMA Standard
- FHLMC Standard
- Home Possible
- FHA 203(b), VA and USDA
*May not be applicable on all programs. Refer to program guidelines for restrictions.