FHA  2-1  BUY-DOWN

 

Often times lenders will allow borrowers to temporarily "buy down" the interest rate on a mortgage. The FHA 2-1 buy down allows a purchaser to reduce the initial interest rate on their mortgage by 2% the first year, 1% the next year, and then at a fixed rate every year thereafter. It is important to note that there is generally a fee in the form of discount points to buy down a mortgage that the SELLER can pay.


With a 2-1 buy down, if you were to "temporarily" lower the rate on a 6% 30 year mortgage, the interest rate the first year would be 4%, the next year would be 5%, and it would return back to 6% the third year and every year thereafter.

If the seller is paying for the buy down and the buyer will occupy the property for more than 3 years, most mortgage professionals will recommend a permanent buy down so that the borrower can enjoy the savings over a longer period of time.

 

 

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