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A Temporary Rate Buydown

Is a powerful option for both homebuyers and sellers

As the real estate market continues to shift, you need a Fairway Advantage. A seller- and/or buyer-funded interest rate buydown can benefit both parties in the sale and purchase of a home.

WHAT IS A TEMPORARY BUYDOWN?

A temporary buydown allows the seller and/or borrower to prepay some of the interest on a fixed-rate mortgage in exchange for a discounted interest rate for the first one to two years of your mortgage, after which the interest rate reverts to the full note rate for the remainder of the loan. To cover the difference between the reduced payments made by you (the borrower) and the regular payments received by the lender, a predetermined amount is withdrawn from a special escrow account funded by the seller that is set up for that purpose. The total monthly payment received by the lender, consisting of the payment made by you (the borrower) plus the withdrawal fromt he established escrow account is the same as it would be in the absence of the temporary buydown.

THE TABLE BELOW LISTS THE TEMP BUYDOWN OPTIONS BY LOAN TYPE
TEMPORARY BUYDOWN TYPE WHO CAN FUND THE BUYDOWN
Conventional
1/0, 2/1 or 3/2/1*
Seller/Borrower/Lender**
VA
1/0 or 2/1
Seller
VA
1/0 or 2/1
Seller
USDA
1/0 or 2/1
Seller
Jumbo
1/0 or 2/1
Seller/Lender**
*A 3/2/1 temporary buydown is only available as a seller-paid buydown. **Lender-paid buydown is only available using premium pricing and may not be available for every scenario. ***Not available through all Jumbo investors.

HOW DOES A 3/2/1 TEMPORARY BUYDOWN WORK?

A 3/2/1 temporary buydown is a temporary reduction below note rate of three percent (3%) during the first year, a reduction below note rate of two percent (2%) during the second year of the loan, and a reduction below note rate of one percent (1%) during the third year, after which the interest rate reverts to the full note rate for the remainder of the loan. The interest rate change each year is automatic, and the borrower is not required to requalify for the loan.
BELOW IS AN EXAMPLE OF THE BREAKDOWN OF A 3/2/1 TEMP BUYDOWN ON A $100,000 LOAN
(30-YEAR FIXED-RATE MORTGAGE WITH 6.5% INTEREST RATE, 6.717% APR)
YEAR PAYMENT BY BORROWER PAYMENT FROM ESCROW ACCOUNT PAYMENT RECEIVED BY LENDER
1
$449.04
$183.03
$632.07
2
$506.69
$125.38
$632.07
3
$567.79
$64.28
$632.07
4-30
$632.07
$0.00
$632.07
For the example above, taxes and insurance are not included in the monthly payment.

HOW DOES A 2/1 TEMPORARY BUYDOWN WORK?

A 2/1 temporary buydown is a temporary reduction below note rate of two percent (2%) during the first year and a reduction below note rate of one percent (1%) during the second year of the loan, after which the interest rate reverts to the full note rate for the remainder of the loan. The interest rate change from year 1 to 2 is automatic, and the borrower is not required to requalify for the loan.

BELOW IS AN EXAMPLE OF THE BREAKDOWN OF A 2/1 TEMP BUYDOWN ON A $100,000 LOAN
(30-YEAR FIXED-RATE MORTGAGE WITH 6.5% INTEREST RATE, 6.717% APR)
YEAR PAYMENT BY BORROWER PAYMENT FROM ESCROW ACCOUNT PAYMENT RECEIVED BY LENDER
1
$506.69
$125.38
$632.07
2
$567.79
$64.28
$632.07
3-30
$632.07
$0.00
$632.07
For the example above, taxes and insurance are not included in the monthly payment.

HOW DOES A 1/0 TEMPORARY BUYDOWN WORK?

A 1/0 temporary buydown is a temporary reduction below note rate of one perfect (1%) during the first year, after which the interest rate reverts to the full note rate for the remainder of the loan. The interest rate change after the first year is automatic, and the borrower is not required to requalify for the loan.
BELOW IS AN EXAMPLE OF THE BREAKDOWN OF A 1/0 TEMP BUYDOWN ON A $100,000 LOAN
(30-YEAR FIXED-RATE MORTGAGE WITH 6.5% INTEREST RATE, 6.717% APR)
YEAR PAYMENT BY BORROWER PAYMENT FROM ESCROW ACCOUNT PAYMENT RECEIVED BY LENDER
1
$567.79
$64.28
$632.07
2-30
$632.07
$0.00
$632.07
For the example above, taxes and insurance are not included in the monthly payment.

BENEFITS TO THE SELLER:

  • A buydown may help you avoid price reductions
  • The cost you incur may be a tax write-off*
  • A concession may foster goodwill in the process of selling your home.
  • It makes your home available and appealing to a wider group of homebuyers, especially in a higher rate atmosphere.

BENEFITS TO THE BUYER:

  • You can save money up front when purchasing a home.
  • A lower interest rate may result in a lower monthly payment.
  • You may be able to use the extra cash for other expenses associated with homeownership.
  • Any unused funds will be applied as a loan principal reduction.

*This advertisement does not constitute tax advice. Please consult a tax advisor regarding your specific situation.

REVIEWS

Scott Lake and his team at Fairway made our home buying experience a breeze! They were always on top of everything, worked quickly for us, and also helped us with a lot since we did a private sale and didn't have our own realtor. Very grateful we picked Fairway!
Becky and her team were amazing. This was our first time buying a home and it was nothing like your typical drawn out home buying process. When strings needed to be pulled and hoops needed to be jumped they were there finding every way possible to get what we needed and fast. I'm so thankful the Lord led us here with fairway and pleased to have done business with Becky and her team it's been a pleasure and I will definitely tell friends and family! Here's a beautiful sunset at our new home!
Becky was extremely helpful during our prospective buying experience, totally willing to assist us with urgency and diligence. Would fully recommend her to anyone, you’ll be in great hands!
Fairway Independent Mortgage Corp. was a pleasure to work with. Their team is professional, organized and quick to help. They helped my family and I get pre-approved to put an offer in on a house same day. We just got the keys to the house yesterday and couldn't be happier. The entire process was much easier with the help of Fairway Independent Mortgage Corporation and I would recommend starting your home buying process with them.
Denise Long and her team were quick in the process and wonderful in ensuring we were getting the best we could. They took care of us well and we look forward to future loaning on a bigger home when we’re ready with them. They made the process fairly easy on our behalf while explaining everything, which I feel made it quick, easy and less stressful.