By offering to cover the buydown costs, sellers or builders can make their properties more appealing while helping buyers achieve a smoother transition into homeownership.
Explanation of a 3-2-1 B f a 3-2-1 Buydown
A 3-2-1 Buydown lowers the interest rate over the first three years of the loan. The rate increases gradually until it reaches the full interest rate (the rate for the remainder of the loan term) in the fourth year. • Year 1: Interest rate is reduced by 3%. • Year 2: Interest rate is reduced by 2%. • Year 3: Interest rate is reduced by 1%. • Year 4: Interest rate returns to the full rate for the remaining loan term. Example: If your permanent interest rate is 6%, your rate under a 3-2-1 Buydown would look like this:
• Year 1: 3% • Year 2: 4% • Year 3: 5% • Year 4 and beyond: 6%
This structure provides substantial savings in the initial years, allowing buyers to ease into their mortgage payments. This also applies to a 2-1 buydown.
How Does a Buydown Work?
The interest rate reduction is funded upfront, either by:
1. The Seller: Often used as a seller concession to make the property more attractive in a competitive market. 2. The Buyer: The buyer pays for the buydown upfront as
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