3 2 1 Buy-down
Rising mortgage rates is the biggest concern for both buyers and sellers. Everyone is looking for alternative solutions to reduce monthly payments as rising rates lower purchase power for many buyers.
One popular solution is the 321 buy-down. An option available from lenders to help lower monthly payments. The buyer is essentially buying down the rate for the first three years to keep the monthly payments low. Paying up front and putting it into escrow to buy down the rates and lower payments to a manageable level and increase purchase power.
Paying down 3% over 3 years.
7% market rate
Year 1 4%
2 5%
3 6%
4 7%
Within those first three years, before the rate resets to the market rate, it is likely that inflation will be under control and the Fed will reverse course and drop rates. Remember, in the past 100 years, the average length of a recession was 15 months, well short of the 36 months for this buy-down term.
The beauty of this is that the buy-down can be financed by the seller. No out of pocket for the buyer. Buyers and Sellers putting the deal together to make the deal happen. A good Realtor can negotiate the exact terms to best fit the buyer’s specific situation.
There is obviously more to it than what I have described here. For more in-depth understanding, contact a lender to go over credit score and other particulars.
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