A seller-paid buydown allows the seller of a home to reduce the buyer’s monthly mortgage payment for an initial period, typically one or two years. To increase their chance of selling their home, sellers will offer this as an incentive to potential buyers. A seller-paid buydown can be offered by the builder of a new home community or a current homeowner, and it can bring the borrower some significant savings. The amount of savings each month depends on the terms of the buydown and the loan amount. In each buydown, the seller pays a lump sum at closing that covers some of the interest that will accrue on the buyer’s loan over the next year or two.
BankSouth Mortgage offers six buydown programs that sellers and buyers can take advantage of when certain eligibility requirements are met.
The 2/1 Buydown is available for Conventional, FHA, and VA loan programs. The buydown period on a 2/1 Buydown is two years. In year one, the mortgage payments are based on an interest rate that is 2% below the actual interest rate of the mortgage, which is called the Note rate. In year two, the mortgage payments are based on an interest rate that is 1% below the Note rate. In year three and the remaining years of the loan, the mortgage payments are based on the Note Rate. The borrower saves money each month during the buydown period by having lower monthly payments.
The 1/0 Buydown is also available for Conventional, FHA, and VA loan programs. The buydown period for a 1/0 Buydown is one year. In the first year, the buyer’s mortgage payments are based on an interest rate that is 1% below the Note rate. In year two, the borrower starts paying the mortgage based on the Note Rate and will continue to do so for the remaining payments on the loan. The cost to the seller for a 1/0 buydown is less than a 2/1 buydown because they only pay for one year of reduced payments. Of course, this also means the savings to the buyer is less on a 1/0 Buydown than the 2/1, but this is still a great option for many buyers and sellers.
- Only offered on 30-year fixed purchase loan programs
- House must be the primary residence
- Condos must be warrantable
A buydown is a great way to incentivize the sale of a home or reduce your initial monthly payments. Want to know more? Reach out to your local BankSouth Mortgage Loan Officer.