As borrowers navigate historically low inventory, inflation concerns, and volatile interest rates, there is an increased interest in temporary buydowns for weathering today’s market. 

What is a Buydown? 

A temporary interest rate buydown offers borrowers a lower interest rate for a specified period of time at the beginning of their mortgage. 

Buydown funds, by definition, are an upfront, cash deposit. A portion of the funds is released from an escrow account each month, allowing the lender to temporarily reduce the buyer’s interest rate and monthly payments.

5 Benefits of a 1-0 Buydown

#1 Borrowers Can Qualify for a Lender Credit 

With the Payment Saver Program, the 1-0 Buydown product offered at NJ Lenders Corp., many purchase clients can qualify for a lender credit that will cover the cost of a 1-0 temporary buydown. 

#2 Lower Rate 

With a 1-0 buydown, your rate is 1% lower for the first year of your loan. Once that year is up, it will adjust to the permanent rate. 

#3 Wide Availability 

Temporary buydowns are available on all fixed mortgages offered through Fannie Mae, Freddie Mac, FHA, and VA. 

#4 Save on Interest

Borrowers are not responsible for the extra interest during the time that they have a lower interest rate. The difference is paid out of an escrow account funded by your lender. 

#5 Lower Payments When It Matters Most

Payment amounts will be lower for the first year of a temporary buydown loan, giving borrowers additional room in their budget to make investments or improvements in their home after moving in. 

Qualifying for a 1-0 Buydown

Borrowers should note that when applying for a mortgage with a temporary buydown, the payment amount they will qualify for is based on what the final interest rate will be.

For example, if a borrower locks a rate at 6% with an initial buydown rate of 5%, the amount they qualify for is based on the higher rate to ensure that they can afford the full payment once the initial lower period has ended. 

Closing Thoughts

Getting a lower rate at the beginning of your mortgage can help remove any current barriers to affordability. If rates continue to fall, borrowers can always refinance their loan to secure a lower rate. 

Homeownership is an important financial decision. The best path forward will vary by the individual, which is why we’re here to help guide you every step of the way. Reach out to your trusted loan officer today to determine if a 1-0 Buydown is the best solution for your needs.