Qualified for a Interest Rate Buy-Down? Take Advantage and Save

July 7th, 2009 • Related • Filed Under • by tisha

Could you imagine getting a home loan at an interest rate of below 4% on a brand new home? Well, imagine no more. If money-house1 you are well qualified, you can have access to such an outstanding loan rate right now.

The Buy Down Incentive
For many years, private home builders and sellers have been willing and able to pay an extra fee that “buys down” the interest rate on a mortgage loan. The fee is paid upfront as is calculated in points, each point equal to 1% of the loan’s amount. When a builder/seller pays for each point, the interest rate on the loan is reduced. Partial points can also be used. The buy down incentives are used to entice home buyers into buying one of their homes specifically and it often works because the loan rate is so good.

Buy downs work in different ways. Some will only allow the interest rate reduction to be good for a specified period of time, say one to three years of the loan. If that is the case, the regular interest rate of the loan will return to a fixed rate for the life of the loan. There are builders and sellers that will offer a buy down incentive for the full 30 year term of the loan, which equals big savings for the homeowner over the life of the loan.

The buy down incentive is also good for new home buyers to qualify for the loan. Since the monthly payments are lowered, it improves the debt to income ratio for the loan applicant. However, qualifying for the loan in the first place is not so easy. Only those consumers with excellent credit scores and a sizable down payment will usually fit the build and be approved for the loan.

Where To Find the Incentives
If you are looking for a home, it is the new home builders you should turn to to find out about the buy down loan incentives. Especially since the new home market has been in decline in light of the current economy, there may be more opportunities for lower interest loans. Builders have an excess of inventory they would like to see sold soon so it is likely they will continue with inexpensive loans that offer the buyer considerable savings over a 30 year loan period.

There is a good chance that a new development is in your area and it should be the first stop on your search for a new home. Ask what kind of deal you can get in each development you visit. Remember that not all builders offer a buy down incentive so find one that does and one that offers the buy down incentive for the full life of the loan. Also keep in mind that these incentives are not always offered in all states and some dedicated research may be required on your part. If you live in an area where there is a large volume of home developments, consider visiting the larger builders first. Many times they will have their own mortgage company in-house and will require a buyer to obtain a loan through them. This gives the builder/lender a bit more flexibility in the negotiation of incentives. Remember to look at the total package you are getting as well as the amount of savings. You want a house you can afford but also a home that you will enjoy.