Buy a Home
Offset the up-front costs of buying a home, maintain your cash flow and work up to the income that will make your long-term mortgage affordable by decreasing your initial interest rate.
A 2-1 buydown offers flexible financing options that allow you to lower your interest rate for the first two years of your loan, making homeownership more accessible now.
You have several choices for selecting the mortgage loan which best fits your financial situation and goals. The 2-1 buydown option allows you to lower your initial interest rate resulting in monthly mortgage payments that are more affordable in the first two years of your mortgage. This buydown is available in conjunction with multiple loan types.
In the first year, you pay an interest rate that is 2% lower than your locked (or actual) interest rate. In the second year, your payment will be based on an interest rate that is 1% lower than the locked rate of your mortgage. By the third year, you begin paying the total rate agreed to when you closed on the purchase of your home.
How is this possible? An up-front cost is paid at closing to make up for the difference in interest payments to the lender. This cost is known as “discount points”—or simply “points”—and is paid into an escrow account that will be drawn from to cover those interest costs.
With this buydown, there are two possible scenarios:
Let’s look at an example of how much a 2-1 buydown could save you:
In the first year, you would save $366 per month for a yearlong savings of over $4000. In the second year, your savings would be $188 monthly with over $2000 for that entire year.
A 2-1 buydown can make it easier to afford—right now—the home you love rather than waiting until your income increases. This strategy gives you more flexibility with cash flow in the first two years of homeownership.
Is a 2-1 buydown your best option to purchase a home? Get in touch with us at Compass Mortgage to learn more! To get you started, we’ve outlined the steps and documentation needed to help you understand the process of getting a mortgage.
Our 2-1 buydown program makes owning a home more feasible for many buyers. As you shop for a home, we will examine the options for financing with you and help you determine if the 2-1 buydown—or some other possibility—is best for you.
We will be with you throughout the entire process to help you purchase your home with affordable financing.
These are some of the typical requirements to qualify for a 2-1 buydown. Remember: We’re here to help if you have any questions!
A 2-1 buydown can be beneficial for the homebuyer and for the seller or builder. Homebuyers can work their way up to affording their full monthly mortgage payment, allowing for flexibility with cash flow and offsetting some initial costs of buying a home. If you want to afford a larger loan that you know you will be able to afford over the long term, this approach can help make it possible.
Sellers may also want to offer a 2-1 buydown as a concession to homebuyers as an incentive to the buyer in order to sell the home more quickly without lowering the listing price. Builders who need to sell newly constructed homes sometimes offer a buydown to ensure purchase and occupancy.
There are a few risks to be aware of with a 2-1 buydown. The buydown is an up-front cost to cover the interest you won’t be paying on a monthly basis in the first two years. Since this cost will be paid into an escrow account by the seller or the builder (if it’s a new home), this won’t be an issue for you unless there is some unforeseen difficulty with the escrow account so that payment is not made to the lender.
Ultimately, these payments are your responsibility as the borrower and mortgage holder. You also want to make certain that, when your interest rate reaches its full amount (when, for instance, the 2-1 buydown period is concluded), you have enough income in the third year to afford your mortgage with its full monthly payment amount.
There are several loan options that can make buying a home as affordable as possible to meet your needs and financial situation. Each loan type offers its own benefits such as lower down payment amounts and flexible requirements for qualification. You may also qualify for down payment assistance, no down payment or be eligible to use a gift down payment.
When it comes to lowering your interest rate, there are also other buydown options that impact how many percentage points your interest rate is lowered and for how long. (All of these come with their own up-front costs.) Our mortgage professionals at Compass Mortgage can help you understand all of the options and resources available to make your home purchase affordable.
Depending on your purchase loan, you may need to account for other expenses, some of which will be up-front costs as well as those included in your ongoing monthly payment. These will be clearly outlined as your loan is processed and before you close. Apart from the initial 2-1 buydown, you may also need to make a down payment which can be from 3-20% of the home’s price.
You’ll also need to pay closing costs, covering expenses such as loan origination fees, an appraisal, up-front mortgage insurance and title insurance. Closing costs typically ranged from 1-3% of your total loan amount. Certain purchase loans offer options to help you afford all of these costs, including FHA and VA mortgage loans.