It is time to stand out of the crowd and become a savvy buyer and for that, you must explore the various rate buydown options available in the market to you. By delving into these strategies, supercharge your buying power and get closer to achieving your dream of homeownership while staying on track with your financial goals.
What Is An Interest Rate Buydown?
An interest rate buydown involves working with your lender to secure a more favorable rate based on your available funds for a down payment and closing costs.
Do not let rising interest rates throw a wrench in your plans of buying and securing a beautiful home for yourself. There are ways to lower these rates, and an interest rate buydown is just that.
Temporary vs. Permanent Interest Rate Buydown
When we talk about qualifying for a mortgage, you have two options to choose from:
Temporary Buydown
It is known as a 2/1 or 3/2/1 buydown. In this strategy, there is a temporary reduction in your interest rate of the mortgage during the first 1, 2, or 3 years. It works like a good introductory deal to make your early years more manageable. However, once the temporary buydown period is over, the rate (amount of interest) will revert to its original note rate.
Permanent Buydown
On the other hand, if you select a permanent rate buydown, it offers the same reduction interest rate throughout the entire cycle of your loan. If you see the bigger picture, it acts as a get a permanent discount on your interest payments in the long run. Since the amount does not budge, you easily manage deductions accordingly.
Which Option To Choose – Temporary or Permanent?
Choosing between a temporary or permanent rate buydown is dependent on multiple factors. Here are some important points to ponder when you decide to make the call.
- Initial rate qualification – If you meet the criteria at the initial (higher) rate but desire good sure-shot savings in the early years of your mortgage, a temporary rate buydown might be the best route to select.
- The seller’s contribution is important. If they are willing to fully provide funds to the rate buydown, it could tip the scales in your favor for a temporary buydown.
- The type of loan, whether you are applying for a conventional or government-funded mortgage, a temporary buydown option would fit like a glove.
- The ratio between debts to current income is necessary to qualify at the initial rate. It is not easy. What is beyond conventional loans? If you are setting your sights on jumbo or non-traditional mortgage loans, a
- permanent rate buydown opens up possibilities that a temporary buydown cannot match.
Closing Note
You can always get in touch with professionals from Reddoor Funding to provide you with accurate information about loan programs. Connect with us by dialing 832-539-1099.