Is a Buydown Smart in Indiana?

Not only does Indiana consistently rank in “most affordable states” lists, you can make homeownership even more affordable right now with a buydown option.

A 2-1 buydown lowers your mortgage interest rate for the first two years of homeownership, and Compass Mortgage is THE choice for Indiana borrowers who wish to acquire a 2-1 buydown.

What's in this article?

What is a mortgage buydown?
How does a buydown work in Indiana?
What is the advantage to a buyer using a buydown in Indiana?
Living in Indiana: How much does it cost to “buy down” an interest rate in Indiana?
Who can get a buydown in Indiana?
Is a 2-1 buydown a good idea in Indiana?

Let’s take a look at how a mortgage buydown works in Indiana and what you need to do to get underway.

What is a mortgage buydown?

A mortgage buydown allows homebuyers to reduce their interest rate in the first few years of homeownership.

In exchange for the reduced rate, the seller must pay an up-front fee at closing that is usually deposited into an escrow account.

A 2-1 buydown offers a 2% lower interest rate in the first year of homeownership and a 1% lower rate in the second year. In the third year, the full interest rate agreed upon at the outset will take effect.

Buydowns are not a new option, but they are more popular during periods of high-interest rates when homeownership becomes less affordable for many borrowers.

Recently, interest rates have reached near 7%, where they haven’t been since 2002.

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How does a buydown work in Indiana?

Home sellers or contractors often will offer a buydown as a concession to the buyer and must pay the up-front fee at closing.

Buydowns in Indiana are beneficial for both buyers and sellers. 

It becomes more difficult for sellers to sell a home during periods of high rates and home prices; and at the same time, it’s more difficult for buyers to afford a home.

Offering a buydown, such as a 2-1 buydown, gives buyers significant savings in the first few years of homeownership and allows the seller to sell their home more quickly.

2-1 buydown example for Indiana buyers

Let’s say you want to purchase a $195,000 home in Indiana. You put down 10% on the home, $19,500, and are approved for a $175,500 mortgage at a 7% interest rate over 30 years.

Your monthly payment would be $1,297 without a buydown.

If the seller is offering a 2-1 buydown, your first-year interest rate would be 5%, and your second-year rate would be 6%. In the third year, your approved 7% rate takes effect.

In the first year of homeownership, your monthly payment would be $1,047 or $250 less per month.

In the second year, it would be $1,169—$128 less per month.

With a 2-1 buydown, you would save a total of $4,536 in the first two years of homeownership.

What is the advantage to a buyer using a buydown in Indiana?

Interest rates plummeted in 2020 and 2021 in response to the COVID-19 pandemic. 

Homeownership finally became an option for many first-time buyers, and those who weren’t quite ready to purchase started to budget for their future.

Unfortunately, the days of record-low rates are long gone. Rates are now sitting at around 7%, with experts predicting more jumps as the Federal Reserve continues to raise its funds rate to tame inflation.

Many people who had hoped for the chance to finally purchase a home in Indiana have had to put their plans on hold.

In response to rising rates, Compass Mortgage jumped into action so our team of experienced loan officers could offer Indiana borrowers more solutions.

A 2-1 buydown in Indiana gives buyers the opportunity to afford homeownership when they would not be able to otherwise. A buydown may even be able to offer a borrower the chance to qualify for a larger home with two years of savings.

Living in Indiana: How much does it cost to “buy down” an interest rate in Indiana?

Indiana was No. 2 on CNBC’s list of the “Top 10 cheapest states to buy a house in 2022” and No. 10 on Forbes’ list of the “10 Cheapest States To Live In For 2022.”

In addition to low housing costs, Indiana has low unemployment rates and is home to Purdue University, Notre Dame and other distinguished institutions of higher learning. What’s more, Indiana experiences all four seasons!

Indiana also is in the process of executing a massive solar project and is home to both bustling cities and quiet country living.

Whether you’re moving for affordability, employment opportunities, a fresh start or retirement, consider a 2-1 buydown in Indiana to help you access significant savings on your new home.

Who can get a buydown in Indiana?

To get a 2-1 buydown in Indiana, you’ll have to meet certain lender requirements.

Common requirements include:

  • Qualifying credit score
  • Minimum down payment amount and closing costs which depend on loan type
  • Up-front cost paid by buyer or seller as mortgage points or as a lump sum
  • Verifiable, ongoing income
  • Lack of excess debt, as measured by applicant’s debt-to-income ratio (DTI)
  • Fixed interest rate loan

You can use a 2-1 buydown with most purchase loans, including conventional and FHA loans.

To get started with Compass Mortgage’s 2-1 buydown program, you will share basic information with one of our loan officers about your home purchase and needs.

We’ll then work with you to obtain your credit report and discuss your financial situation to find the best loan option.

Is a 2-1 buydown a good idea in Indiana?

A 2-1 buydown can help make homeownership possible for qualifying Indiana borrowers.

If you’re wondering whether the 2-1 buydown program is right for you, reach out to our Compass Mortgage team and start the application process today.

We offer our borrowers Get Committed®, a unique program which provides a fully underwritten loan commitment that locks in your interest rate before you even find the property you want to buy.

Having a standard preapproval does not mean that you have secured a loan. With Compass Mortgage’s distinctive Get Committed® program, you can go through most of the steps in the loan process to secure a loan commitment before you even make an offer on a home.

Compass Mortgage treats you like family. Finance your home with our simple, personalized loan process.

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