Is a buydown smart in South Carolina?

Are you considering buying a home in South Carolina but wondering what the smartest way to finance it is? Have you heard of a “buydown” but aren’t sure what it is or whether it’s right for you? If so, you’re not alone. Many potential home buyers in the Palmetto State are considering a buydown to lower their monthly mortgage payments and make home ownership more affordable. But is a buydown really the best option? That’s what we’ll explore in this blog post.

What is a mortgage buydown?

A buydown is a financing strategy that involves paying a lump sum at closing in exchange for a lower interest rate on your mortgage. This can result in lower monthly payments, making homeownership more affordable in the short term.

How does a buydown work?

When you agree to a buydown, you pay a certain amount upfront to the lender or a third party, such as a builder or developer. In return, the lender agrees to reduce your interest rate for a specified period, typically the first few years of your mortgage. This results in lower monthly payments during that time.

Advantages of a buydown

There are several advantages to using a buydown to finance a home purchase, including:

1. Lower monthly payments: The main advantage of a mortgage buydown is that it can lower the interest rate on a mortgage, resulting in lower monthly payments for the borrower. This can make it easier for the borrower to afford the home and allow the borrower to qualify for a larger loan.
2. Short-term affordability: A buydown can make a mortgage more affordable in the short term, especially for buyers who expect their income to increase over time. This can be particularly beneficial for buyers just starting out or those with lower incomes.
3. Qualification: A buydown can make it easier for buyers with lower credit scores or fewer savings for a down payment to qualify for a mortgage.
4. Fixed-rate mortgage options: Some buydown programs allow you to choose a fixed-rate mortgage, which can provide stability and predictability in your monthly payments.
5. Potential to build equity faster: Because a buydown reduces your monthly payments, you may be able to pay down your principal faster, which can result in building equity in your home more quickly.
6. Potential to refinance: If interest rates drop after you close on your mortgage, you may be able to refinance to a lower rate and save even more money on your monthly payments.
7. Flexibility for future income growth: For borrowers who expect their income to increase over time, a buydown can provide flexibility by locking in a lower payment while they are still earning a lower salary and then benefiting from the increase in income as the interest rate adjusts.
8. Help to Qualify: A buydown can also help borrowers with lower credit scores or less down payment to qualify for a mortgage.
9. Potential to sell the buydown: In some cases, you may be able to sell the buydown to another borrower if you need to sell your home before the buydown period ends. This can help recoup some of the costs of the buydown.

Living in South Carolina 

South Carolina is located in the southeastern United States, known for its coastal beaches, historic cities, and southern charm. The state is home to many popular tourist destinations, such as Myrtle Beach, Charleston, and Hilton Head Island. It has a rich history dating back to the colonial era, which can be seen in the many historic sites and monuments scattered throughout the state. The climate of South Carolina is generally warm and humid, with hot summers and mild winters.

The real estate market in South Carolina has been relatively stable in recent years, with modest growth in both home prices and sales. According to Zillow, the typical home value of homes in South Carolina is $300667, and home values have gone up 19.2% over the past year. The state has a variety of different types of housing options, including single-family homes, townhouses, condos, and more. Popular areas for real estate include the coastal regions, such as Charleston and Myrtle Beach, areas with large retirees population, many opportunities for golf communities, and waterfront properties.

Are there limits on buydowns in South Carolina?

There are no state-specific limits on mortgage buydowns in South Carolina. The most common limit in buydowns across the US is that the interest rate can’t be buydown below a certain percentage or rate established by the government or the secondary market investors. Additionally, buydowns are usually only available for first and second homes and may have other requirements depending on the type of loan you qualify for. 

It’s also important to consider that buydown programs may have different costs, and the percentage and timing of the interest rate adjustments vary. Some buydown programs may have a higher initial buydown cost, but the interest rate will be lower and adjust less frequently, while others may have a smaller buydown cost but a higher rate and more frequent adjustments.

How much does it cost to buydown an interest rate in South Carolina?

The cost to buydown an interest rate in South Carolina will vary depending on the specific terms of the mortgage, the size of the loan, and the lender. Typically, the buydown cost is expressed as a percentage of the loan amount and is paid at closing.

For example, if a lender is offering a buydown of 2% for the first year, and the loan amount is $450,000 at a 7.5% interest rate, the cost of the buydown would be $9,000 ($4500 per point). This amount would be added to the closing costs and paid by the borrower at closing, and your interest rate will reduce to 7% as each mortgage point is 0.25%.

Who can buydown a mortgage? 

In addition to the borrower, other parties, such as sellers and builders, can also be responsible for buying down the interest rate on a mortgage.

In the case of a seller buydown, the seller of the property can offer to pay a portion or all of the buydown cost as an incentive to buyers to make the home more attractive and increase the chances of selling it. This can be a good option for sellers looking to sell their property quickly or for properties that may be harder to sell for other reasons. This can also be a way for the seller to cover some of the closing costs for the buyer.

Builder buydowns, also known as developer buydowns, are similar to seller buydowns. Builders and developers can offer to pay a portion or all of the buydown cost as a promotional offer to buyers of new construction homes. This can make mortgage payments more affordable in the short term, especially for those with lower incomes or just starting.

In both cases, the buyer will benefit from the lower interest rate and monthly payments, which can make the home more affordable.

Is a 2-1 buydown a good idea in South Carolina?

Are you considering buying a home in South Carolina? A 2-1 buydown can help you save money in the first two years of homeownership, giving you the flexibility to use the savings for other areas where it is needed, such as a new car, another house, home improvements, or investments. Additionally, a 2-1 buydown can help you qualify for a larger home than you might have been able to afford otherwise.

At Compass Mortgage, we understand the importance of securing a loan before finding the home you want to buy. That’s why we offer our borrowers the Get Committed® program, a unique preapproval program that provides a fully underwritten loan commitment that locks in your interest rate before you make an offer on a home.

Don’t settle for a standard pre-approval. Apply today or contact us for assistance and take advantage of our simple and personalized loan process. Let us help you find your dream home in South Carolina with the peace of mind that your loan has been secured.”