Couple discussing loan options with a mortgage professional

What is a temporary buydown and when does it make sense to get one?

Temporary buydowns are best for those who need to buy a new home now, but expect to have a higher monthly income later. Basically, a temporary buydown helps people qualify for mortgages due to a smaller initial monthly payment. The interest payments are reduced for the first few years in exchange for a cash deposit. Then, they gradually increase over the course of a few years. For example, Guild’s seller-paid or lender-paid temporary buydown program reduces the interest rate for the first year by 2%, and 1% the following year. By the third year, payments resume as normal.  Buydowns can be added to many regular loan programs such as Conventional, FHA and VA loans.

  • Cash deposit (buydown fee)

    While lower payments are helpful, a cash deposit is required. Also called the buydown fee, it’s what offsets the discounted interest. This cash deposit can come from a number of sources. The buyer can supply it, a family member can provide it as a gift or a motivated seller may be willing to pay it. Sometimes home builders pay the fee for families moving into newly constructed homes.

  • Temporary buydown vs ARM

    You’ll probably see some fixer-upper foreclosures out there with a 5-figure asking price. Though you may be willing to renovate, securing financing may be a challenge. Condition issues that endanger health and safety can prevent you from getting a mortgage, and the bank in possession of the home will rarely pay for the upgrades needed to bring it up to code.

The above information is for educational purposes only. All information, loan programs and interest rates are subject to change without notice. All loans subject to underwriter approval. Terms and conditions apply.

By |Published On: March 12th, 2020|Categories: Guild Blog|

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About the Author: Guild Mortgage

Founded in 1960 when the modern U.S. mortgage industry was just forming, Guild Mortgage Company is a nationally recognized independent mortgage lender providing residential mortgage products and local in-house origination and servicing. Guild’s collaborative culture and commitment to diversity and inclusion enable it to deliver a personalized experience for each customer. With more than 4,000 employees and over 250 retail branches, Guild has relationships with credit unions, community banks, and other financial institutions and services loans in 49 states and the District of Columbia. Guild’s highly trained loan professionals are experienced in government-sponsored programs such as FHA, VA, USDA, down payment assistance programs and other specialized loan programs. Guild Mortgage Company is a wholly owned subsidiary of Guild Holdings Company, whose shares of Class A common stock trade on the New York Stock Exchange under the symbol GHLD.