A 2-1 buydown is a loan that has an interest rate 2% points lower the first year and 1% lower the second year and then adjusts to the full interest rate in year three. Therefore, it’s critical to remember that this buydown of the interest rate is a temporary and does not permanently reduce your interest rate. The cost associated with this benefit can be paid either by buyer or seller. Sellers, including home builders, may want to consider using this incentive if they are having trouble selling their property or are in a buyer’s market. Keep in mind that even though your loan is starting off with a reduced payment, your lender will underwrite the loan based off the full interest and your current debt to income will have to support this adjusted future rate. I’m Stewart Brown, a licensed Mortgage Loan Originator in Palm Springs, California here to simply topics in Real Estate and Mortgage Lending. Please, like, share, follow and subscribe!
