If you are considering financing your home with an FHA loan or VA loan, chances are you might hear about the 2/1 buydown program where you can “buy” your interest rate down for the first two years. The 2/1 buydown program is popular with people who are first time homeowners and are stretching a little to buy their first home.
The 2/1 Buydown: How It Works
The 2/1 buydown program is a temporary buydown is an arrangement wherein the property seller, borrower, lender, builder, developer, or real estate agent deposits money to an account so that it can be released each month to reduce the borrower‘s monthly payment during the early years of the mortgage.
During the first two years of the program the interest rate is “bought down” and subsidized with the money that was deposited into the buydown account at the title company.
When using the 2/1 buydown program, the homeowner will still be required to qualify at the full note rate in most cases and it is possible that the buydown program can be considered a “compensating factor” when qualifying.
2/1 Buydown Program Restrictions
Allowed on purchase transactions only.
Maximum 1% increase in one year.
Adjustments may only be one time per year.
Maximum 2% below note rate
Example 2/1 Buydown Program Scenario
Have more questions about the 2/1 interest rate buydown program that is available for FHA and VA loans? Be sure to contact your loan officer.
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