WTF is a 2–1 Buy down?
Get the seller to pay part of your mortgage payment for the first two years. That’s a 2–1 buy down.
Basically the seller gives you a credit to cover the difference in payment between the note rate and 2% less in rate for the first year, moving to 1% less in rate the second year. This difference in payment is held in an escrow account with the lender and added to your payment each month.
How does it work? I’m going to use the sample transaction on the CFPB Loan Estimate to illustrate how it works. Click here to see the sample Loan Estimate. The only difference is I’m going to update the interest rate to reflect the current market (as of 10/26/2022). Click here to see where I got the average of 7.2% for a conforming 30 year fixed rate mortgage.
Here’s the break down of this deal:
Home Price: $180,000
Loan Amount: $162,000
Mortgage Program: 30 Year Fixed Rate
Rate: 7.2%
First we need to know the payment for our loan for year one, year two and years 3 through 30. These payment figures are for the mortgage only since the taxes and insurance will be the same across all payments.
The payment for our mortgage of $162,000 at the current national average rate of 7.2% is $1099.64 per month.
