Are you looking to purchase a home with a payment you can grow into? Temporary buydowns may be the solution for you. Temporary buydowns allow the buyer or seller to pay points up front so that your interest rate is lower for up to the first 3 years of your loan. This results in a lower house payment and more flexibility for your budget. This is much different than an Adjustable Rate Mortgage because your "Note Rate" is fixed for years 4-30 and you know that rate up front. Call your local lender today to see how low your payments could be on the home of your dreams.
EXAMPLE 1: Seller has a home listed for $100,000. At full price, the buyer will borrow $95,000 (5% down payment) and pay $584.93(P & I) each month for 30 years. Total payments for the first 36 months is $21,057.48 (P & I). But to save money, the buyer wants to offer $95,000. Based on an interest rate of 6.25% and a 30 year loan with 5% down payment and a loan amount of $90,000, each of the monthly payments for the life of the loan would be $554.19 (P & I). Total payments for the first three years would be $19,950.84 (P & I). This is a $30.74 per month savings over purchasing the home at full price. Total savings for the buyer over 36 months would be $1,106.64 (P & I).
EXAMPLE 2: Now consider the buyer asks the seller to pay for a 3/2/1 interest rate buydown. First year interest rate would be 3.25%, second year would be 4.25%, third year 5.25% and fourth and succesive years would be fixed at 6.25%. Seller would pay approximately $3,900 for the buydown. This would leave an additional $1,100 ($5,000 - $3,900) the buyer could ask the seller to pay toward the buyer's closing costs. In this scenario, the buyer would finance $95,000. Payment for the first year would be $413.45 (P & I), second year would be $465.84 (P & I) and third year would be $519.95 (P & I). The total payments for the first three years would be $16,790.88 (P & I), a savings of $3,159.96 in addition the seller's contribution of $1,100 toward the buyer's closing costs. THE SELLER NETS THE SAME IN BOTH SCENARIOS.
Information contributed by Chris Hodges, Mortgage Consultant with Wells Fargo Home Mortgage in Tulsa, Oklahoma. You can contact him for additional information at Chris.S.Hodges@WellsFargo.com