Permitted Buydown
Terms
l1% - 12 Month Adjustment Period
l2% / 1% - 12 month
Adjustment Period (often referred to as a 2/1Buydown)
l3% / 2% / 1% - 12 month
Adjustment Periods.
l1% - 6 month Adjustment
Period
l2% / 1% - 6 month
Adjustment Periods
l3% / 2% / 1% - 6 month
Adjustment Periods.
lBuydowns
with 6 month adjustment period are often referred to as “compressed
buydowns”
Interested Party
Contributions
The cost of
the buydown can be contributed by the Builder, Developer,
Seller, or Real Estate agent.
lIf
funds are being contributed by an interested party, the buydown
cost is considered part of the financing concessions and must
fall within Underwriting guidelines for
contributions/concessions.
QualifyingFor 90% or lower:
•The qualifying debt ratio will be
calculated on the initial interest rate for loans under 90% LTV. (
For example if you have a 2/1 buydown on a 30 year fixed rate with a
note rate of 7% - the qualifying rate for a 90% LTV or lower would
be 5%.)
•If the buydown plan provides for a 1%
buydown the interest rate at the 1st adjustment
will be used.
•If the buydown plan provides for a 2% or
3% buydown, the interest rate at the second adjustment will be used.
For
an 80/5, 80/10, 80/15 - the qualifying rate is the initial rate.
Buydown
CostThe cost of the buydown
will depend on the buydown terms chosen.
The cost of the buydown is the actual cost of the subsidy
payments.
l
Examples… Not current Rates
Selling BenefitsThis loan is based on
a fixed rate and ARM products so it allows for complete
stability with a lower initial rate/payment for qualifying
purposes. In this market with
Builders trying to qualify more buyers for their home this
can be an effective tool. Price with a 3 year
prepay and get the lowest payment option for the customer.
