Loan Programs

---

The real estate market may not be as open for some as once before given the decreasing affordability factor.

Rising home prices and interest rates are the major culprits. But there’s hope for future homebuyers through a 3-2-1 buydown mortgage loan.

This loan program lets borrowers take on a loan with a low interest rate introductory. Over several years, the rate will reach a higher, permanent level. This allows homebuyers the flexibility to purchase a home and have several years of extra wiggle room.

3-2-1 buydown mortgage basics 

This loan type may give buyer’s an interest rate reprieve. Homebuyers can assume a new loan that features a lower interest rate for at least the first few years of the loan. For this financial convenience, borrowers will need to come up with an up-front payment. In some respects, it’s similar to buying down the interest rate with mortgage discount points.

3-2-1 is available for primary residences and second homes, but not investment properties. It cannot be combined with an adjustable-rate mortgage program, either.

The ‘3-2-1’ in 3-2-1 buydown mortgage loan

The “3-2-1” refers to how the interest rates are structured or divvied out.

In the first year, loan holders’ interest rate is lower by 3 percent. It then is reduced to 2 percent in year 2; and 1 percent in the third year. Once this period is over, the permanent rate kicks in, ending the buydown period.

3-2-1 buydown mortgage benefits

Homebuyers with a little extra money can boost their prospects of buying a home with this flexible loan program. It gives them a little extra breathing room during the first few years of the home. It might be that’s all the time they need to finally pay off some other loans and land a promotion with bigger pay.

The lower monthly payments during the first three years are also an opportunity to put away some savings that would have otherwise gone toward the mortgage payment.

Once the loan resets and the permanent interest rate is introduced, homeowners also have the clarity of what to expect in terms of how much they will pay each month. This will help them budget and move forward with certainty.

The upfront costs of a 3-2-1 buydown can be covered by someone other than the homebuyer in some cases. As home sales tighten, some home sellers might be willing to pay for the process of this loan as a deal sweetener. Some home builders might also offer this financial perk to new home buyers.

So, if you’re willing to pay a little upfront, then you might benefit from a 3-2-1 buydown loan, mostly through a lower interest rate for the first several years of the loan. Those percentage points can go a long way in today’s market, which continues to change as home prices and interest rates move in the upward direction.