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Are you looking to buy a new home but worried your payments will be too high? If so, you may want to consider a purchase temporary mortgage buydown. A temporary mortgage buydown is a financing option that allows you to obtain a lower interest rate for the first few years of your mortgage. This can help you to keep your monthly payments more affordable and make your dreams of buying a new home a reality.

What is a Temporary Mortgage Buydown?

A temporary buydown is a mortgage financing option that allows borrowers to get a lower interest rate for a specific period of time--usually the first one to three years of their mortgage. This can be a great option for buyers who want to lower their monthly payments in the short-term and save on interest in the long-term.

What are the benefits of a temporary buydown?

Lower monthly payments: A temporary buydown can lower your monthly mortgage payments by hundreds of dollars each month, which can make it easier to afford a home, especially if you're on a tight budget.

Calculate your potential mortgage payments with our affordability mortgage calculator.

Save money on interest: A temporary buydown can save you money on interest over the life of the loan. You will be paying a lower interest rate for a predetermined period.

What terms are available?

Examples of some temporary buydown terms:

• 1-1 buydown: The interest rate is reduced by 1 percentage point for the first year of the loan, and then returns to the original rate after one year.
• 2-1 buydown: The interest rate is reduced by 2 percentage points for the first two years of the loan, and then returns to the original rate after two years.
• 3-1 buydown: The interest rate is reduced by 3 percentage points for the first three years of the loan, and then returns to the original rate after three years.
• 3-2-1 buydown: The interest rate is reduced by 3 percentage points in the first year, 2 in the second year, 1 in the third year, and then returns to the original rate after the third year.

What is a seller buydown and how does it work?

At PHH, we offer what is called a “Seller-Paid Buydown”. A seller-paid buydown is accomplished when a seller credit or sum of money that the seller of a home agrees to pay to the buyer, is applied at closing. This money can be used for a variety of things, such as closing costs, down payment, or even to pay for a temporary buydown on the mortgage.

For a temporary buydown to be an option:

• You need to find a lender who offers temporary buydowns. Not all lenders offer this option, so you'll need to do some research to find one that does.
• You need to agree to the terms of the buydown. This will include the length of the buydown period, the interest rate reduction, and the cost of the buydown.

To use a seller credit for a temporary buydown, you'll need to negotiate with the seller. When making an offer on the home, your agent will include a clause that asks the seller to contribute a certain amount of money as a credit. Once you've reached an agreement with the seller, you'll work with your lender to get the buydown approved. The lender will need to verify that the seller is willing to contribute the money. If everything goes smoothly, the temporary buydown on your mortgage will be complete.
 

Is a temporary buydown a good option for you?

A few things to consider when deciding if a temporary buydown is a good option for you as a homebuyer:

Your financial situation: A temporary buydown can be a good option if you want to lower your monthly payments in the short term or know that your finances will change once the buydown period ends. However, it's important to make sure that you can afford the higher payments once the buydown period ends.

The type of loan you're getting: Temporary buydowns are typically only available for fixed-rate mortgages. If you're planning on getting an adjustable-rate mortgage, a temporary buydown may not be an option.

The terms of the buydown: When you're considering a temporary buydown, it's important to understand the terms of the agreement. This includes the length of the buydown period, the interest rate reduction, and the cost of the buydown.

Keep in mind that a temporary buydown can be a complex process, so it's a good idea to work with a qualified lender who can help you understand all the options and make the best decision for your needs.

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