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 non-citizen with a green card employed in the U.S. Non-permanent resident aliens are subject to somewhat more restrictive qualification requirements than U.S. citizens. Permanent ...
An upfront cash payment required by the lender as part of the charge for the loan, expressed as a percent of the loan amount; e.g., '3 points' means a charge equal to 3% of the loan ...
Adjustable rate mortgages on which the interest rate is mechanically determined based on the value of an interest rate index. Indexed ARMs are distinguished from Discretionary ARMs, in that ...
A facility offered by some lenders to mortgage brokers where de jure the brokers become employees of the lender but de facto they retain their independence as brokers. One of the ...
A lender who specializes in lending to sub-prime borrowers. ...
The sum of all interest payments to date or over the life of the loan. This is an incomplete measure of the cost of credit to the borrower because it does not include upfront cash ...
The definition of interest is extremely important in today’s business environment where lending and borrowing money are the power stations of our economy. A widespread definition of ...
Inserting provisions into a loan contract that severely disadvantage the borrower, without the borrowers knowledge, and sometimes despite oral assurances to the contrary. Prepayment ...
The maximum allowable ratio of loan-to- value (LTV) on any loan program. Generally, these are set by mortgage insurers or by lenders and can range up to 100%, although some programs will ...
Have a question or comment?
We're here to help.