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Friday, August 28, 2009

What is a Buy-Down Home Loan?

What is a Buy-Down Home Loan?
As a buyer in the Long Beach, CA Real Estate market, you’ll find there are many different mortgage loan options available to you. A buy-down mortgage loan is one such option. This option can help you reduce your interest rate … not just temporarily BUT permanently. You also don't have to be the one who does the buying to "buy down the rate" ... keep reading =)

What is a Buy-down Mortgage?
A buy-down mortgage is when you pay an initial lump sum (better known as points) to “buy down” the interest rate on your mortgage loan. This allows you to qualify for larger loan amounts based upon your income, because your monthly payments will be lower. Basically, a buy-down mortgage is when you pre-pay your interest upfront. This particular financing strategy has been around for several years, but usually had been used to buy down a borrower’s interest rate on a temporary basis.

What is a Temporary Buy-down Mortgage?
Just as the name implies, a temporary buy-down mortgage is when you buy-down your mortgage for a specific period of time. The most common way to do this is the 1-2-3 method. This means the buyer pays 3% less than the usual interest rate the first year, 2% less the second, and 1% less the last and third year. The rate then goes to the usual rate. Of course, the terms are usually negotiable and you can buy down even more if you choose to.

What is a Permanent Buy-down Mortgage?
Again, just as the name implies, a permanent buy-down mortgage is a buy-down home mortgage that allows you to pay upfront for the entire loan. Keep in mind that you’ll still have to pay the interest either way. In this case, you’re just paying it upfront.

NOTE: In a “buyer’s market,” it’s not uncommon for sellers to try and entice buyers by offering a permanent buy-down mortgage and the cost of this buy-down comes in the form of “Seller Paid Costs”.

How can this Buy-down Mortgage benefit me?
Now that you know what a buy-down mortgage is, the basic benefits and how it works, with a little more information, you will be able to understand how this strategy could be the key to you moving forward in your plans for purchasing real estate and getting a home in Long Beach, CA.

Knowing your options is a big part of choosing a loan … No matter what you choose, it’s important to speak with a loan professional … if you have any mortgage related questions, I will me more than glad to help you … Additionally, I would be happy to let you know exactly how this strategy may solve any problems you might have encountered in loan approval and loan qualification.
Visit my website CLICK HERE or call my office 562-728-9971 … I would be happy to crunch the numbers for you.