First, you need to understand what a buy down is before you can determine if it is worth it to do a buy down. A buydown is typically when the seller contributes to an escrow account that subsidizes the loan for the first few years, giving the buyer a lower monthly payment.
The seller of the property usually provides payments to the mortgage company which lowers the buyer’s monthly interest rate and, therefore, monthly payment. Many sellers will increase the purchase price to compensate for the costs of the buydown.
Buy downs are used to increase the chances of selling the property, by making it more affordable for the home buyer. A buy down program can be structured in various ways, most programs last for a few years, then the mortgage payments increase to a standard rate once the buydown expires.
Along with your lender you need to carefully consider if it makes sense to use a buydown to purchase a home. This decision can depend on several items, including your mortgage amount, interest rate, and how long you plan to stay in the home.
Here are a few items to remember about buy downs. A buydown allows homebuyers to obtain a lower interest rate. Buydowns can save homeowners money on interest over the life of the loan. Whether it makes sense to choose a buydown when buying a home can depend on the interest rate for which you qualify and how long you plan to remain in the home.
There are different types of buy down programs, may sure to speak with your mortgage broker to understand which programs are available for you.
By R. Jones
