How Rate Buydowns Work
In the world of real estate, there could be terms you are unfamiliar with, but hear often! For example, the words “rate buydown” may be used and have you wondering what this really means. Today, we’re going to break down how rate buydowns work, why they are an incredible incentive that could save you hundreds or even thousands of dollars each month on your mortgage and explore the rate buydowns Magnolia Homes is currently offering!
Let’s start with the definition: what is a rate buydown? A rate buydown is a way for a home buyer to lower their mortgage interest rate for either a set amount of time or the life of the loan. Both options are available. This is in exchange for an upfront fee that will be allotted at closing. This can be paid by the seller, buyer, or lender. There are legal limits to how much can be contributed per loan type and other factors. By providing a sum of money upfront at closing, this provides the ability to lower the interest rate on your mortgage.
Currently, Magnolia Homes has exceptional lender partners that are working with us to be able to provide amazing rate buydown options – we are even seeing some options in the 3.75% range on a 3/2/1 with one of our lenders factoring our current incentive on closing a home plus an additional amount from the buyer depending on specific property and other details.
With a 3-2-1 buydown mortgage, the borrower pays a lower-than-normal interest rate over the first three years of the loan. The loan interest rate is reduced by 3% in the first year, 2% in the second year, and 1% in the third year; for example, a 6.75% mortgage would be just 3.75% in year one! By incorporating this amount into the rate, this is an amount that you personally would not be paying towards the interest rate. Thus, potentially saving you a large sum of money each and every month!
At the time of publication, we are currently offering a permanent rate buydown to a 5.75% interest rate OR a 3-2-1 buydown to 4.5%! We’re offering this for a limited time and through our specific preferred lenders.
