Green Bay Mortgage News

FHA 2/1 Buydown Program -

Let’s face it, we all buy based on a payment, right? Think about the last car you purchased. Were you more concerned about the price you paid or the payment you were going to pay each month? Home buyers are no different and if shown the payment vs. the purchase price, payment typically wins.

So, if payment is the question on most buyers’ minds, then a temporary rate buydown is the answer. Creative financing by way of the temporary rate buydown is a great solution to the common issue of let’s do multiple price reductions until your home is sold. The buydown is nothing more than a seller incentive in which the buyers cost is paid by the seller.

Let's take a look at some real numbers.

Seller has a home for sale for 200,000 and if rates were let's say 5% the buyer would be shopping for a payment of $1073.64 (P&I) on a 30yr loan.

So lets say the buyer wants a payment under $1000 they may ask for the seller to lower the price to $185,000 to get the payment down to $993.12 (P&I).

So your seller would be giving up $15,000 to meet the buyers offer.   However, you could work with your preferred lender to offer a FHA 2/1 Buydown to the buyer and here's how it would work: 

Buyer pays $200,000 for the property and gets a 3% Rate for the first year (2% lower for the first year - the "2" of the 2/1) and will have a payment of $843.21 for the first year.  Then a 4% Rate for the second year (1% lower for the second year - the "1" of the 2/1) and will have a payment of $954.83 for the second year.

The seller could include a 3% concession to cover the cost of the 2/1 Buydown (that's what it would cost) and keep the sales price at $200,000.  So in the example the seller would only be offering $6000 instead of $15,000 and would be keeping the sales price at $200,000.

Keep in mind this program is not a adjustable rate.  It's a traditional 30 year fixed loan, offering the buyer a payment in this scenario of 3% for the first year, 4% for the second year, and fixed at 5% for years 3-30.

This is a very good option not only to keep our homes value in check, but also meet the sellers and buyers goals.