2-1 Buydown | NC FHA Expert

How to Buy Down A Mortgage Interest Rate

April 14, 2012 By Eleanor 2 Comments

With any mortgage program, you can pay discount points to have a lower “starting point” (interest rate) for your mortgage. This process is called “Buying the Rate down” and is often referred to as a Permanent Buydown. Although the formula varies, one discount point might buy the rate down 1/8 of 1 percent – two points (using this example) could buy your interest rate down by 1/4%.

Another way to buy your rate down is called a Temporary Buydown. With this scenario, a lump sum of money is placed into an escrow account for you at closing. A portion of the money is then drawn out by the mortgage holder each month and added to your monthly payments. The most common program to use the Temporary Buydown with is the FHA Mortgage Loan.

If your fixed rate mortgage is at 4.5% (for instance); you might opt to put an amount equal to approximately 2.6% of the mortgage aside. By establishing this “savings account” you could make monthly payments your first year based on a 2.5% interest rate, and the second year at a 3.5% interest rate. As you make your 2.5% payment, the mortgage holder takes the money out of your “savings account” equal to the other 2% of interest and applies it to your 4.5% mortgage payment. This account would be drawn down to zero at the end of the two years, and the payments would be at 4.5% for the remainder of the loan.

So, with interest rates at 4 and 4.5% (or less) in 2012 – you might not think this is a program most people are talking about… and you’d be right. Traditionally, we use this program when mortgage interest rates are at 6.5% and higher. But if you are a student just graduating from college, or a couple who is getting married, and buying your first house – you might be in a situation where you have some additional “gift funds” that could be used to make a mortgage payment a little easier to handle those first few years!

Added Benefit?? While we are not Accountants (read: Check with your Tax Preparing Professional), we understand even though the Seller, or whoever, is paying this “buydown” on your behalf – you get to claim it on your taxes. It’s Pre-Paid Interest on a House… so an extra $4500 deduction, could be N-I-C-E!

Bottom line, a Temporary Buydown is most popular if a buyer has extra fund for closing costs. For instance, if the seller is willing to pay some of the costs, and your company is paying part of the cost for relocation – the additional funds could be applied to a temporary buydown. With this option, you make lower payments during the first years of the mortgage, without the uncertainty of an Adjustable Rate Mortgage (ARM).

If you have questions about how a Temporary Buydown (or a permanent buydown) might help you buy a house in Raleigh – call Steve and Eleanor Thorne 919 649 5058 – we have the best rates, and we help people every day who want to buy a home! It only takes 15 or 20 minutes to get pre-qualified!

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Should You Take The $12,000 Financing Package Builder Pushes???

September 12, 2011 By admin Leave a Comment

too good to be true It’s easy to be mesmerized by the ads.

Your mortgage rate will be 2.5% the first year, 3.5% the second year and then FIXED at 4.75% for the rest of the time you own your home! You get a HUGE Tax advantage because you can write all of that upfront interest off! Beautiful New Home!

Just $12,000 more…

Let me ask you somethin’, that community is not finished. In fact, the builder’s rep told you that since this is the first phase, they’ve decided that once they sell the next 18 homes and move into the NEXT phase… they are going to lower the prices of the homes.

Is that “sweet deal” of $12,000 to use the builder’s mortgage company really all that “sweet?” We don’t think so either.

If you are considering a new home purchase in the Triangle, please call Steve and Eleanor Thorne, Mortgage Loan Originators in Raleigh, NC 919-649-5058…

We’ll give you an honest comparison, and the best rate for a mortgage you can find

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Filed Under: First Time Home Buyer Tagged With: 2-1 buydown, builder offered loan packages, first time home buyer program

Have We Hit The Bottom On Mortgage Rates in NC?

August 4, 2010 By Eleanor 2 Comments

I read a ton of Economic commentary and as such, I can sometimes come across as a “Debbie Downer.” The reason for this is simple.

I like low mortgage rates – I’m constantly looking to see if they are going lower… and in general, as mortgage interest rates move lower, it’s BECAUSE of BAD NEWS in the Economy.

Most people don’t want to read commentary from someone who is delivering more bad news, because they get enough of that from the media. So instead of pointing out that home sales are down, and consumer confidence is off, and the Economist that Obama most listens to (Mark Zandi) thinks we need more jobs to make markets move higher…

Let’s look at the Bright Side of Life!

Mortgage Rates are at an ALL TIME low. I’m talking lower than World War II when our grandparents all bought houses.

Housing Prices are at an ALL TIME low. You’ve never been able to get a better deal on Real Estate. That’s a fact I don’t think ANYONE can disagree on!

The question then becomes… are we at the Bottom?

I am a syndicated writer. I write for Zillow and Lender 411, and I’ve been saying lately that”this is not my first rodeo” – meaning, I’ve seen at least 7 other Refinance Booms in my mortgage career. They all follow a pretty predictable path (If you want to know if you should refinance now, click here). Rates get low, they pop back up, they get a bit lower over a gradual period of time, and then one day – they don’t get any lower.

At some point, the banks are just not interested in buying mortgage loans, over a 30 year period, that have rates below a certain percent of profit.

It looks to me like we are there. (Can I Get A Refinance Under 4.25%, click here) I think we are at the bottom of this cycle, and that means if you are waiting for a lower rate, you are wasting valuable time! In a few hours, the ADP jobs numbers will be released, and Friday, August 6th the NonFarm Payroll Numbers will be released.

These reports, if AT ALL positive will likely move mortgage rates higher.

If you want to PURCHASE, and, and, and the moon is right, and you have money to cover your closing costs, and your down payment - you might be able to work out a temporary buy down so that you would have payments starting at 2.5% the first year, 3.5% the next year and 4.5% (4.8 APR) for there on out. But that will be the exception, not the rule. (click here for more info on a 2-1 Buy Down)

So, if you are considering a Home purchase in Raleigh or Cary, or you want to refinance a mortgage in NC – please don’t wait, call Steve and Eleanor Thorne 919-649-5058. We’ve seen these situations before, and you need to act while rates are where you want them to be!

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Filed Under: Housing News Tagged With: 2-1 buydown, best mortgage rates cary, best mortgage rates raleigh, economic forecast, home loan mortgage rates, mortgage rates, purchase home loan mortgage, refinance, refinance mortgage rates, temporary buydown

What is a 2-1 Buydown?

November 7, 2008 By Eleanor 1 Comment

Many lenders are shouting about “Fixed Rate Mortgages starting at 4.5%”

I’ve even gotten calls from Real Estate Agents asking how they are doing this! Some of these offers are NOT good deals. For more information about MISLEADING Ads involving this program click here.

However, in the right situation, it’s a good loan. So let’s do some math – and I’ll try to make this as simple as possible.

The 2-1 Buydown is usually used with a FHA loan, although you can also do this with other loan types. Fixed rate FHA loans, today are around 6.5% So let’s work on that number… A fixed rate mortgage for 30 years with an interest rate of 6.5%.

If you have a FHA loan of $250,000 (for instance) then your principal and interest payment at 6.5% is $1,580.17 – and that payment, along with your taxes and insurance (and mortgage insurance) will be used when we are qualifying you for a mortgage.

So where did the 4.5% come in?

Well, in an effort to help folks feel more comfortable with homeownership, lenders are offering a FIRST year rate of 4.5% on the loan and a SECOND year rate of 5.5% – and then for the rest of the life of the loan, the payments will be made at 6.5%… this is why it’s called a 2-1 buydown. The interest rate is “bought down” 2% (from 6.5 to 4.5) the first year, and 1% the next year (from 6.5 to 5.5).

So the next question might be what does “Bought Down” mean – and this is where you might need a calculator.

In basic terms, the difference between the 6.5 rate on the the mortgage – and the payment rate of 4.5 for the first 12 months is put into an escrow account.

So the $250,000 loan at 6.5% has a P&I (Principal and Interest) payment of $1,580.17. For that same $250,000 loan, the P&I at 4.5% is $1,266.71. The difference in the payment is $313.46.

On the $250,000 loan at 5.5%, the P&I is $1,419.47. The difference between the 6.5% payment and the 5.5% payment is $160.70.

To establish the escrow account (and make this program work) a seller must contribute an amount equal to 12 months of $313.46 (or $3,761.52) and 12 months of $160.70 (or $1928.40) – a total of $5,689.92.

Then, when you make your payment for the first year at $1,266.71, and your mortgage is accruing interest at a payment rate of $1580.17, the bank is pulling out $313.46 every month from the escrow account and applying it to the mortgage!

See?? That wasn’t so hard to understand! My husband and I purchased our house under this program – only we had a 3-2-1 buydown!

And here’s the BEST part… folks who have not owned a home in the last 3 years are already eligable for a $7500 tax credit from Uncle Sam… with this program (I’m not a tax accountant so please check with your professional), as I understand it, even though the Seller is paying this money on your behalf…. you can still WRITE OFF $5689.92 (the amount of the escrow) on your taxes in your first year??? HOW COOL IS THAT!?!