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Temporary Buydown

What is a temporary buydown?

With a temporary buydown, the effective interest rate that a borrower pays during the early years of the mortgage is reduced as a result of a lump sum of money (sometimes called a subsidy) into a buydown account, a portion of which is released each month to reduce the borrower’s payment. 

Advantages of a Temporary Buydown 

  • Immediate impact on affordability
  • Ease into homeownership 
  • Borrowers do not have to pay their full monthly payment for 1 to 3 years 
  • The seller can avoid reducing the home’s list price by offering a temporary buydown, which provides an incentive to buyers and can be a less costly option

Available Product Options

Below are the buydown options that Morty has access to. DTI is based off the Note Rate.

1-0 Option2-1 Option3-2-1 Option
The effective rate is reduced by 1% for the first year of the mortgage.The effective rate is reduced by 2% for the first year of the mortgage and 1% for the second year of the mortgage.The effective rate is reduced by 3% for the first year of the mortgage, 2% for the second year of the mortgage, and and 1% for the third year of the mortgage.

Third parties that are eligible to cover temporary buydowns:

  • Seller
  • Builder (Seller or real estate agent) 
  • Real estate agent
  • Correspondent lender 

The funding for the buydown can only come from one source and cannot be split between two sources. Contributions are held to investor Interested Party Contribution (IPC) limits.

Eligibility

Below are some characteristics that can make a buydown eligible or ineligible. Make sure to confirm all points before moving forward.

Occupancy TypesLoan Types
EligiblePrimary residences 
Second homes 
Purchase 
Rate and Term: correspondent Lender Funded
IneligibleInvestment Properties 
Manufactured homes
Adjustable Rate Mortgages 
Cash Out 
Home Equity Loan

Early payoff 

If a mortgage payoff occurs before the temporary buydown period has concluded, the remaining buydown subsidy funds sourced from a third party will be applied to the payoff balance of the loan. 

Temporary Buydown vs. Discount points 

Discount points are used to buy down the interest rate for the life of the loan. Temporary buydowns will only lower the rate during the buydown period. Once the buydown fund runs out, the buydown period ends, and the original note rate applies.