Seller Paid Buydowns
What are Seller Paid Buydowns?
Seller Paid Buydowns are mortgage loans where the seller of the property pays for some or all of the points that lower the interest rate for the buyer. This can make the loan more affordable for the buyer, especially in a market with high interest rates. The seller may also pay for a temporary rate buydown, which reduces the interest rate for the first few years of the loan before it rises to the permanent rate.
A Seller Paid Buydown can be a win-win situation for both parties, as it can help the seller sell their home faster and the buyer save money on monthly payments.
What Types of Buydowns are Available?
Seller-paid buydowns can take different forms, such as a permanent buydown or as a temporary buydown.
With a permanent buydown, the seller pays points to buy the rate down permanently and allows buyers to have lower monthly payments over the life of the loan.
With a temporary buydown, Â the seller pays for a portion of the interest for a fixed period of time and allows buyers to have lower monthly payments during the initial years of homeownership.
Examples of temporary buydowns are 1-0, 2-1 and 3-2-1 buydowns. In a 1-0 buydown, the seller pays 1% in the first year, and the buyer assumes the full interest rate from the second year onwards. In a 2-1 buydown, the seller pays 2% in the first year, 1% in the second year, and the buyer assumes the full interest rate from the third year onwards. Similarly, in a 3-2-1 buydown, the seller contributes 3% in the first year, 2% in the second year, and 1% in the third year, after which the buyer takes on the full interest rate.
Benefits of Seller Paid Buydowns
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