Buy Down

A Temporary Buydown loan is a loan used for purchases in which the borrower receives the equivalent of a reduced interest rate for one or two years. The buydown is accomplished through a predetermined cash deposit called the “Buydown Deposit” which is paid to the lender to hold and administer in accordance with a Buydown Deposit Agreement. The Buydown Deposit may be contributed by the builder, the seller, borrower, lender, or other allowable contributor. However, the contribution must come solely from one of these sources and cannot be obtained from several of the listed sources for one loan.

This money will be applied and paid by the lender on a monthly basis toward the monthly payments due under the mortgage for the first 12 or 24 months of the mortgage loan, whichever is applicable. Each monthly payment from the Buydown Deposit will pay only a part of the total monthly mortgage payment and the borrowers will be required to pay the balance of each payment as it comes due. 

In the event that the mortgage loan is prepaid in full prior to exhaustion of the Buydown Deposit funds, any remaining and undistributed sums in the Buydown Deposit fund will be credited to the unpaid mortgage balance. The funds in the Buydown Deposit may not be used to apply past due payments or late charges on the mortgage loan.

• 2/1 Buydown: The principal and interest (P & I) payment is calculated at an interest rate 2% lower than the Note rate for year one. Year two, the P & I payment is calculated 1% lower than the Note rate. Year three, the P & I payment is calculated at the Note rate and continues at this rate for the life of the loan.
  

• 1/0 Buydown: P & I payment is calculated at an interest rate 1% lower than the Note rate for year one. Year two, the P & I payment is calculated at the Note rate and continues at this rate for the life of the loan.