Nashua homebuyers who want to save money on their monthly payments are turning to the 2-1 buydown loan option from Mortgage Equity Partners. A 2-1 buydown loan is a loan with a reduced monthly payment for the first two years of the loan, and then the third year of the loan, the payment will rise to its note rate. So basically, you get a lower mortgage payment during the first two years of your loan.
Why are we currently seeing so much interest in 2-1 buydown loans?
Generally, when interest rates are rising, lenders look for products to make homeownership more affordable for borrowers. 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, but they must be sure they can afford the new payment when the first two years have passed.
A 2-1 buydown is frequently used as an incentive by home sellers if they have difficulty selling their homes and need to make the offer more enticing. Often, it helps the property sell more quickly; however, the cost comes from the proceeds of the sale of the home. In addition, the cost associated with the buydown loan can also be paid for by the homebuyer, realtors, or home builder.
In 2022 as property values continue to rise, 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.
“In Nashua and the surrounding communities, the home prices continue to go up, which is great if you are a homeowner, but as a first-time homebuyer, it is making the monthly payments almost unaffordable. Our loan officer showed us how to reduce our monthly payments for the first two years with the 2-1 Buydown Program. It works for us because we both expect to make more money in the next two years, so we aren’t concerned about the payment rising in the third year,”
~ Karen and Robert Johnson, MEP First Time Homebuyers.
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?
- 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 to reduce the cost of their monthly payment for the first two years of homeownership to pay for upgrades or repairs
- A borrower who wants a low initial payment but doesn’t want an adjustable-rate mortgage
How do I qualify for a 2-1 buydown loan?
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.
The 2-1 buydown loan is an excellent tool for first-time homebuyers in Nashua to use as they adjust to making a monthly mortgage. So if you want to buy a home now and need a solution to lower payments temporarily, a 2-1 buydown is an excellent choice. Get in touch with us to find out if you can lower your monthly payments today!
