Many homebuyers who have been on the fence about buying a new home or waiting to see what mortgage rates will do over the next several months are moving towards 2-1 buydown mortgage loans. 2-1 buydown loans are becoming very popular with borrowers in Fort Myers, Cape Coral, and the surrounding communities where home prices continue to rise. These borrowers are choosing this option in the hopes that rates may come down in the next two years and they can refinance to a lower permanent rate.
Why are we seeing so much interest in 2-1 buydown loans in Fort Myers?
Generally, when interest rates are rising, lenders look for products to make homeownership more affordable for borrowers. 2-1 buydowns or temporary rate buydowns are not new, but many first-time homebuyers may not be familiar with the program. A 2-1 buydown is a temporary buydown that lasts for two years and helps borrowers get lower monthly payments. A 2-1 buydown loan is an excellent option for homebuyers in Fort Myers looking for a lower monthly payment on their home loan for the first two years, but they need to be sure they can afford the new payment that comes in year three.
A borrower must qualify for the loan at the current mortgage rate. For example, if you are getting a 30-year fixed-rate loan and the rate is 7%, then you must also be able to qualify for the loan at that rate. In addition, your DTI or debt-to-income ratio must not exceed that required to qualify for the loan.
A 2-1 buydown is sometimes used as an incentive by a home seller if they are having difficulty selling their home and need to make the offer more enticing. Offering an incentive can help properties sell more quickly; however, the cost of the buydown comes from the proceeds of the sale of the home. Other ways to fund a buydown include having the homebuyer, realtors, or even the home builders contribute.
In 2022 as property values continue to rise in Fort Myers and most of Florida, sellers do not need to offer many incentives due to a lack of inventory. Still, buyers see the opportunity to make their monthly payments more affordable and are taking advantage of the buydown option. For example, most of the 2-1 buydown loans at Mortgage Equity Partners are financed by homebuyers. The funds to reduce the payments are deposited in an escrow account and made on behalf of the borrower. So in effect, a portion of the payment gets prepaid at closing.
“We were told about the 2/1 Buydown loan program and were able to purchase a new home and save money on our monthly payments for the first two years. It is great because we can use that money for furniture and some repairs we want to make.”
~ John and Lisa Dias, First-time Homebuyers in Cape Coral, FL.
Here is how it works:
This example is based on the current 30-year fixed-rate mortgage with an interest rate of 7%.
A 2-1 Buydown is a simple fixed-rate mortgage where a portion of the payment is prepaid over two years.
Who is the best borrower for a 2-1 buydown loan in Fort Myers?
- A borrower whose income could increase within two years
- A borrower whose spouse or partner will return to work in the next two years
- A borrower who wants a low initial payment but doesn’t want an adjustable-rate mortgage
- A borrower who wants to reduce the cost of their monthly payment for the first two years of homeownership to pay for upgrades or repairs
The 2-1 buydown loan is an excellent tool for first-time homebuyers in Fort Myers and the surrounding Florida communities to use as they adjust to making a new mortgage payment. Many borrowers are using the savings for repairs and upgrades to their homes or putting the savings away to prepare for the higher rate in year three. So if you want to buy a home in Fort Myers now and need a solution to lower your monthly payments contact your loan officer today to learn more about this exciting program!
