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 second mortgage offered at preferential (subsidized) terms to those who qualify. For example, a labor union may offer members who are first-time home buyers a silent second to finance ...
A clause in the note that allows the lender to demand repayment of the balance in full. A demand clause is even better (for the lender) than an acceleration clause. An acceleration clause ...
Fees assessed by lenders when payments are late. Late fees are usually 4% or 5% of the payment. A borrower with a 6% mortgage for 30 years who pays a 5% late charge every month raises his ...
A mortgage that does not meet the purchase requirements of the two federal agencies, Fannie Mae and Freddie Mac, because it is too large or for other reasons, such as poor credit or ...
The longest period for which the lender will lock the rate and points on any program. On most programs, the longest lock period is 90 days; some go to 120 days and a few to 180 days. It ...
The total cash required of the home buyer/borrower to close the purchase plus loan transaction or the loan transaction on a refinance. Required cash includes the down payment, points and ...
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 ...
When a borrower has difficulty making the scheduled payment. Position of the Lender: A good place to start is by understanding the position of the lender. A game plan for survival ...
Same as term housing expense. The sum of the monthly mortgage payment, hazard insurance, property taxes, and homeowner association fees. Housing expense is sometimes referred to as PITI, ...
Have a question or comment?
We're here to help.