First Time Home Buyer Resources (Part 4– Temporary Subsidy Buydown)

Temporary subsidy buydown plans are a way to help homebuyers qualify with the mortgage payment lowered initially, by the interest being "bought down" or prepaid by the homebuyer or the seller. When a homebuyer opts for a buydown plan, they will get lower, more affordable mortgage payments with the stability of predictable payment increases over time.

Most homebuyers choose one of two temporary buydown plans, a Limited or an Extended buydown plan. The Extended plan allows the borrower to qualify at the initial (bought down) interest rate that can be up to 1.5 percentage points lower than the note rate. This rate is then increased gradually (0.5 percentage points each year for up to three years), allowing the borrower to make higher payments as their income increases. The limited temporary subsidy buydown plan allows them to obtain an initial (bought down) interest rate up to 2 percentage points below the note rate, with a 1% rate increase each year for the next two years. Borrowers are qualified at the initial (bought down) interest rate plus 1%.

This is an excellent option for homebuyers who have the capacity for higher earnings within a few years of obtaining a mortgage. Rather than choosing an interest only loan program or a negative amortization adjustable rate mortgage, homebuyers may choose a program where the interest rate is predetermined and their monthly payments cover principal and interest, so their principal balance does not stay the same - or increase- but goes down with every monthly payment made.

See you at the closing table!

Karen Cooper - OR/CA Mortgage Consultant - www.Quality4Loans.com