FHA Home Loan – 2/1 Buydown
The FHA Buydown loan refers to a fixed rate mortgage program with a 15 year or 30 year tenure where the buyer or seller enjoy a 1% to 2% interest rate cut off over a 1 or 2 year period with a prepaid interest rate buy-down fee. Any interest rate cuts apply to the first years only.
Signing up for the 2/1 buydown program lets benefactors receive reduced initial monthly payments as well as qualify for a higher sales price on the home. Applicants who are refinancing their homes can also apply to further reduce payments.
Depending on the buydown program chosen the benefactor experiences a slight 1% increase in the rate for first year and second year. This loan may be streamlined to a fixed rate mortgage loan.
The 2/1 Buydown is a 30 year tenure loan encouraging parties to prepay for reduced interest in the first two years. This program helps the buyer qualify for larger loans in addition to ensuring the first few years enjoy lower payments.
An example of a FHA 2/1 buydown program is:
Standard 30 year FHA mortgage program
$200,000 loan amount
8% interest = $16,000 is paid in interest/year
Entering the 2/1 buy down allows for:
$200,000 loan amount
1st year = 6% rate = $12,000 interest for the year
2nd year = 7% rate = $14,000 interest for the second year
This could lead to substantial savings for the buyer.
Learn about this program and other FHA loans here.
