Temporary Buydown
Definition of "Temporary Buydown"
A reduction in the mortgage payment made by a homebuyer in the early years of the loan in exchange for an upfront cash deposit provided by the buyer, the seller, or both. How Temporary Buydowns Work: Temporary buydowns are a tool for borrowers purchasing a home who don't have enough income, relative to their monthly mortgage payment and other expenses, to meet lender requirements. To use a temporary buydown, the borrower must have access to extra cash. The cash can be the borrower's or it can be contributed by a home seller anxious to complete a sale. The cash funds an escrow account from which the payments that supplement the borrower's payments are drawn. While the borrower's payments are reduced in the early years, the payments received by the lender are the same as they would have been without the buydown. The shortfalls from the borrower are offset by withdrawals from the escrow account. Temporary buydowns are not a type of mortgage. They are an option that can be attached to any type. Most temporary buydowns, however, are attached to fixed-rate mortgages. Temporary Versus Permanent Buydowns: Another way in which borrowers with excess cash can reduce their mortgage payment is by paying additional points in order to reduce the interest rate. This is sometimes called a 'permanent buydown' because the reduced payment holds for the life of the loan. For the same number of dollars invested, however, temporary buydowns reduce the monthly payment in the first year, which is the payment used to qualify the borrower, by a larger amount than a permanent buydown. This reflects the concentration of the payment reduction in the early years of the loan.
Popular Mortgage Terms
A document that evidences a debt and a promise to repay. A mortgage loan transaction always includes a note evidencing the debt, and a mortgage evidencing the lien on the property. ...
Markets in which mortgages or mortgage-backed securities are bought and sold. 'Whole Loan' Markets Versus Securities Markets: Secondary mortgage markets are of two general types. 'Whole ...
Same as term Bridge Loan: A short-term loan, usually from a bank, that 'bridges' the period between the closing of a home purchase and the closing of a home sale. To qualify for a bridge ...
Refinancing that omits some of the standard risk control measures and is therefore quicker and less costly. The rationale for streamlined refinancing is that, while it is an entirely new ...
The monthly mortgage payment which, if maintained unchanged through the remaining life of the loan at the then-existing interest rate, will pay off the loan at term. ...
The provision of the U.S. tax code that allows homeowners to deduct mortgage interest payments from income before computing taxes. Points and origination fees are also deductible, but not ...
A lender who offers mortgage loans directly to the public. ...
A mortgage on which all settlement costs except per diem interest and escrows are paid by the lender and/or the home seller. A no-cost mortgage should be distinguished from a ...
A lender who specializes in lending to sub-prime borrowers. ...
Have a question or comment?
We're here to help.