Learn About a 2–1 Buydown Loan
At The French Team, we understand that navigating the home buying process can be difficult and somewhat intimidating. It's our goal to provide you with the information you need to make the right decision when it comes to your home financing needs! We have provided the information below to answer some of the most common questions about 2-1 Buydown Loans.
What is a 2-1 Buydown Loan?
A 2-1 Buydown Loan is a type of mortgage that allows borrowers with limited funds to qualify for a home loan. It helps reduce the borrower's monthly payments during the first two years of the loan by temporarily lowering the interest rate. This loan program "buys down" the interest rate of the loan, providing a discounted interest rate for the borrower during the first two years of repayment.
Once the introductory period expires, the interest rate will gradually increase until it reaches the regular market rate. This is done in a series of increments, usually by increments of 1% until the market rate is reached. The borrower is then obligated to repay the loan at the increased rate.
Who is eligible for a 2-1 Buydown Loan?
Any borrower can apply for a 2-1 Buydown Loan. This loan program is particularly beneficial for first-time homebuyers or anyone who is on a fixed budget. It's an excellent option for individuals who anticipate a higher income in the future, as they can take advantage of lower rates in the first two years and generate much-needed savings.
What are the benefits of a 2-1 Buydown Loan?
The primary benefit of a 2-1 Buydown Loan is the lower monthly payment during the first two years. This loan program gives borrowers an opportunity to settle into homeownership and establish financial stability without facing the initial burden of high payments. Reduced monthly payments free up cash flow each month, making it an excellent option for individuals who need to save money or have limited funds.
Another benefit of the 2-1 buydown loan is the retention of the buydown subsidy. With a traditional rate buydown, you pay the bank points upfront to lower the rate for the life of the loan. If you refinance or sell your home before you have recouped those initial fees, you just lose the money. In the case of temporary buydowns, the fees for the buydown are placed into escrow. If you refi or sell your home prior to that account being depleted, you will get that money back in the form of a principal reduction or a refund.
What are the requirements for obtaining a 2-1 Buydown Loan?
The best part of a buydown, there are no additional requirements to qualify!
A 2-1 Buydown Loan also usually requires the same level of documentation that standard loans require. You'll need to provide proof of income, tax returns, and other financial documents.
*Not all temporary buydown options are available for every product or scenario. Talk to your
Fairway loan officer for more details. A 2/1 temporary rate buydown will reduce the note rate
by 2% for the first year of the term, followed by a 1% reduction of the note rate for the second
year of the term, after which the rate will then revert back to the original note rate for the
remainder of the term. A 1/0 temporary rate buydown will reduce the note rate by 1% for the
first year of the term, after which the rate will revert back to the original note rate for the
remainder of the term.
Contact The French Team to assess whether a 2-1 Buydown Loan is the right fit for your financial situation.
