Temporary Rate Buydown

In most cases, temporary buydowns are paid for by the seller or a home builder as a closing cost in exchange for receiving the full price on their home. The buyer's interest rate is lower for the first couple of years due to a lump sum of money deposited into a buydown account. The buydown funds are then used to reduce the borrower's monthly payments. As a result, the borrower's rate and payments increase annually until the full note rate is reached at the end of the buydown period.

Buydown Options

1-0 Buydown

Buyer's have their "note rate" (the standard rate) reduced by 1% for the first year, and then it returns to the note rate after this first year.
2-1 Buydown

Buyers can ease into their monthly mortgage payments while having the reliability of knowing when their payments change, and sellers can use this in place of a price reduction, while getting more eyes on their listings.
3-2-1 Buydown

The interest rate is reduced by 3% in the first year, 2% in the second year, and 1% in the third year. After the buydown period ends, the lender will charge the full interest rate for the remainder of the mortgage.

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Conventional
FHA Loans
VA Loans
USDA Loans

Primary Homes
Yes
Yes
Yes
Yes

Secondary Homes
Yes
No
No
No

Paid Options
Seller & Lender
Seller & Lender
Seller Paid Only
Seller & Lender

Minimal FICO Score
660
660
660
660

Benefits to Consumers:

Reduced Payment

A reduced monthly mortgage payment for the first 1-3 years of their mortgage term.
Reallocation of Costs

Savings as a result of the rate buydown could be reallocated to cover closing costs, down payment, home upgrades, or other expenses.
The Gift of Time

Temporary buydowns give buyers the option to enjoy a lower monthly mortgage payment while waiting for the opportunity to refinance to a lower rate.

It may be hard to envision why a seller would want to buydown a borrowers rate. This is understandable given the nature of the program, but a temporary buydown does have benefits for the seller. In fact, sellers may use a buydown as an incentive for a future buyer to purchase their home due to how it will ultimately benefit them.

Consider This Example:

Year
Rate
Monthly Payments

First Year
1
4.5%
$1,267

Second Year
2
5.5%
$1,420

Third Year
3
6.5
$1,580

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The Temp Rate Buydown

Buydown Options

Realize AnnieMac's Flexible Buydown Options

Benefits to Consumers:

Consider This Example:

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