When buying a house with an FHA loan, sometimes people want to participate in a buydown program. The most popular buydown program is called a 2/1 buydown program.
General Requirements for Mortgage Loans with Temporary Interest Rate Buydown Plans
- Borrower must qualify at the Note rate and not at the “bought down” rate. A temporary buydown may only be considered as a compensating factor.
- The buydown must adjust in no earlier than 12 month increments and be no greater than 1% per 12 months.
- Maximum 2-1 Buydown is permitted.
- Costs for temporary buydowns, unless paid by the borrower, must be included in the 6% seller contribution limitation.
- Escrow Buydown Agreement must be signed at closing by the borrower and provider of the buydown funds.
- The buydown funds are placed in an escrow account to contribute towards the borrower’s mortgage payment during the term of the buydown.
- Any unused buydown funds remaining in the escrow account should the loan be prepaid must be applied to the principal balance of the loan.
To Get Matched With a Lender, Click Here»
Generally speaking, temporary buydowns are not allowed for any refinance transaction or any ARM transaction.
Here is a simple example of a 2/1 buydown:
The difference in the amount of payments between the Note rate and the effective payment rate is funded from a buydown account that is established when the
loan closes. The following table illustrates the monthly and annual buydown amount that is funded from the buy down account.
