In a buyer's market .......

buydown options are a great tool for you as a home buyer to save large amounts of money!

A buydown is a type of financing where the buyer or seller pays extra points (also called discount points) to reduce the interest rate on a loan. Buydowns make it easier to qualify for a loan because they lower a loan's interest rate. They can also allow you to buy more house for your money.

There are generally two types of buydowns: a permanent buydown and a temporary buydown. A permanent buydown lets you pay extra points to get a low interest rate over the life of your loan.

A permanent buydown can be paid by the seller or the builder as an incentive to finalize a sale by creating lower monthly payments. Sellers can also benefit from assisting with a buydown with a difficult to sell property or during slower market conditions. It increases the buyer’s ability to qualify for a loan, therefore, allowing the home to be sold quicker. Plus, a buydown offer is usually less than a price reduction on the home.

In a temporary buydown, the seller or home builder can prepay interest in exchange for a lower rate during the early years of a loan. The most common temporary buydown is called 3-2-1, meaning the mortgage payment in years one, two and three is calculated at rates 3 percent, 2 percent and 1 percent, respectively, below the rate on the loan. On a 2-1 buydown, the payment in years one and two is calculated at rates 2 percent and 1 percent below the loan rate. And on a 1-0 buydown, the payment in year one is calculated at 1 percent below the loan rate.

A temporary buydown can be a benefit to any home buyer, but especially to  home buyers whose current income is low but anticipates that it will increase during the next one to three years. First-time homebuyers who need to purchase all of the furnishings that go into a new home may also find a temporary buydown appealing. A home buyer who can negotiate a buy down will save 1000s of dollars for the first few years. When the seller pays for the buy down there is absolutely no down side to you the home buyer!