You may have been hearing a lot about temporary buydown or 2/1 buydown solutions from some of my colleagues. Well, yeah, it’s a good solution for the right borrower. They do help get introductory payments and rates well below current market the first two years, but what they don’t do is help a borrower qualify for more loan and home. That’s what a PERMANENT buydown does.

It’s permanent because the points paid are used to buy down that rate at the loan’s closing. Since the rate is permanently bought down, the borrower qualifies at the bought down rate and payment thus qualifying for more loan. What if you could get a $450,000 borrower to qualify for $500,000? You basically need a 1% lower interest rate to get a 10% increase in borrowing power. The 1-10 Rule for those that don’t know.

Now why aren’t more lenders promoting this or more borrowers taking advantage. Simple answer. There’s only so much cost a borrower can pay toward the loan and finance charges as determined by the federal government. The max is 3% of the loan amount and that includes the standard fees a lender charges to originate a loan, even if the borrower has extra money to buydown the interest rate. To get a full 1% lower it may cost a little more than the 3% cap. Enter the seller. Rather than drop the price of home to reach a different buyer pool, offer closing help to assist in buying down a borrower’s interest rate. The money from a seller is outside this limit (seller help does have caps though and varies with loan program). 3 points is about on average how much it would take right now to buy a rate down a full 1%. If a buyer has the funds for down payment and closing but not enough to also buy down the rate, the seller provides closing help and the buyer applies that direct to the permanent rate buydown. Borrower qualifies the higher loan amount, and the seller gets their home sold without dropping price. Win-win.

Contact me to learn more about this or other creative financing solutions!