Have you guys heard about the 2 1 buy down loan?

Question

Hello I'm new into REI/BP and trying to get started right now, as I'm looking at my options a lender started talking to me about a 2 1 Buy Down program (which I assume is covered by the seller) . I've never heard of this so I'm a little shock and confused about how good it sounds. I'd also like to know what are the CONS of it.

I just got Pre-approved by my local lender for 320k on loan value on 12/15, is it okay to pull my credit 2 more times to shop for a bigger loan amount or should I just get a co-signer?

Thank you for all the help in advance!!!

Eddie L. · Answer

I considered the 2/1 buydown for a purchase I made in November. The seller had to contribute the amount to escrow for future use and if I were to refinance before exhausting all funds in escrow then the unused funds would be refunded to me. I end up not using the product as I couldn't get the seller to offer the buydown amount and cover closing costs, points, etc. I chose to apply to the sellers concession to closing costs and points and only came out of pocket for the appraisal fee and initial HOA setup fees.

Janis E Borroto · Answer

I just negotiated a 2/1 buy down for my client. We were trying to negotiate price, but gave the seller full asking price with a 2% concession. So our net number is lower, but we had to offer a higher purchase price to account for the concession. That concession will fund the buy down, and any leftover balance will go towards closing costs.

So essentially you are just asking the seller for a concession towards closing costs, because discount points are included in the list of approved items that seller concessions can be used for.

One thing to keep in mind is appraisal-- the seller will only give you the full concession/credit IF the property appraises for the inflated number. If it doesn't appraise, it will of course chip away at your concession, or maybe even get rid of it entirely depending. Then you will need to come out of pocket at closing to pay for the buy down yourself, as the seller most likely won't be willing to renegotiate price, just because it didn't appraise for your inflated number. Hope that makes sense!

In terms of your credit pulls, as most buyers 'shop around' for rates, multiple inquiries from different lenders are typically counted as only a single inquiry — as long as they’re made within the same 14 to 45 days.

Best of luck with your purchase!

Russell Brazil · Answer

Well it isnt as simple as it is covered by the seller. The seller needs to pay it, but it is essentially being paid with your funds.

Let's use some basic numbers. Let's say a seller is willing to sell their home for $300,000 with no seller subsidy or credits. Well they are not them just going to then say, well we will go ahead and take $8k of our money to pay for this 2-1 buy down. So if you want a 2-1 buydown on a $300kish property, just understand you are going to have to pay $8k above whatever the seller's bottom selling price is to get the 2-1 buy down.

Katherine Blazer · Answer

Hi Casey, Yes, a 2/1 buy down is covered with a seller credit held in escrow. You will still need to qualify for the loan at the interest rate of the loan. In very simple terms, let's say you qualify now for a 6.5% interest rate; the first year, you will cover 4.5% interest rate, and then the 2% will come out of the seller credit escrow account. Then the next year, you will cover 5.5% interest rate, and the escrow account will cover 1%. In the third year, the escrow account will be empty, and you will cover all 6.5% of payments. The payment is always 6.5% which is why you need to be able to qualify for you.

The lender should not need to pull your credit again. They should be able to do all the math with your current credit report. However, if you are looking to shop lenders, you should do that sooner rather than later.

Have you guys heard about the 2 1 buy down loan?

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