Homebuyer Tips

2/1 Buydowns Offer Relief from Rising Rates

Your daily news broadcast sounds discouraging, but the news doesn’t show you ways around today’s high rates and price increases. With a little creativity, your dream home is still within reach. Here’s how a 2/1 Buydown offers you creative relief from today’s economic environment. 

What Does a 2/1 Buydown Do?

With a 2/1 Buydown, you get lower rates for the first two years of your mortgage. Each year, the rates slowly rise. Then, your third-year mortgage returns to the permanent rate.

For example, the current mortgage rate is around 7%. If you have a 2/1 Buydown, you only pay a 5% interest rate the first year and a 6% rate the second year. The third year’s payments will be back at 7%. 

How Does It Work?

The first two years of interest are lower because either a seller, home builder, or buyer pays the lender upfront fees to support the lower payments. As a buyer, you would likely pay if you received gift funds from someone else to cover the buydown’s cost.

More often than not, you’ll want to look for sellers or builders offering this option as an extra incentive to buy the home. This means they pay the buydown cost, and you get lower payments the first two years after purchasing the home. 

Is It Right for You?

Like other mortgage products and incentives, a 2/1 Buydown should fit your desired lifestyle. It may be right for you if:

  • Homeowners investing in a short-term home
  • Homeowners expecting personal debt to decrease three years from now
  • Homebuyers who would like a lower payment for the first two years of the loan
  • Sellers who want to give incentives to prospective buyers

Have you found a home offering a 2/1 Buydown? Get pre-approved with First Bank today and take advantage of this opportunity to lower your rates.

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