What is a 3-2-1 Buydown?

If you're worried about your finances when you're ready to buy a home, South Philly Real Estate Team is here to help you explore your options. One of the products available to help you afford a new home and ease you into your mortgage payment is the 3-2-1 buydown. For an upfront payment to the lender, you'll pay a lower interest rate over the first three years of your mortgage. The 3-2-1 buydown is one of several options available to homebuyers looking to save a little cash and ease into their new situation.

More About 3-2-1 Buydowns

A buydown is a type of mortgage financing technique that lets you, the homebuyer, get a lower interest rate for a number of years of your loan in exchange for an additional upfront payment. And with interest rates currently in 2022) resting at a steady 7%, any percentage reduction represents the opportunity to save money on your mortgage. Either the homebuyer or borrower or the home seller can choose to cover the upfront cost associated with the buydown, in many cases the seller covers the fee for a 3-2-1 buydown in the form of seller credit. If your company is relocating you to a new city, they may cover the cost of the buydown in order to alleviate the cost of relocation. The cost of the fee varies depending on the lender, so you'll want to discuss the possibility of 3-2-1 buydown with your lender if you're interested in this product.


3-2-1 Buydown | South Philly Real Estate Team

A 3-2-1 buydown mortgage lowers your loan's interest by 3% during the first year, 2% during the second, and 1% during the third. After the initial three years, your loans permanent interest rate comes online for the remainder of your loan. To give an example, if your interest rate is the current 7%, you would instead pay an interest rate of 4% for the first year, 5% for the second, 6% for the third, before finally paying the 7% at the end of the buydown period. Your savings will add up over time, allowing you to get into a new home without having to shoulder as much financial burden, especially if someone else is covering the upfront fee of the 3-2-1 buydown. Finally, 3-2-1 buydowns are generally only available for primary or secondary homes rather than investment properties and aren't available as part of an adjustable-rate mortgage (ARM) with initial period of fewer than five years.


3-2-1 Buydown Key Points

One thing that is important to note about the 3-2-1 buydown is that you'll still need to be approved for your loan's initial rate, rather than the discounted rate you will receive as part of the buydown. While it the initial upfront fee can seem intimidating, if the seller or lender is covering the upfront fee, a 3-2-1 buydown allows you to save up more cash for emergencies or home repairs before the initial rate becomes effective once more. Whether this product is right for you will depend heavily on what you envision your future will look like and is generally better suited for those who intend to live in their new home for many years. Many homebuyers benefit from being able to "ease in" to their mortgage payments, as it gives them time to acclimate to their new home and neighborhood without feeling overwhelmed by a higher payment.


See Of A 3-2-1 Buydown Is Right For You

If you're thinking about buying a new home but want to make sure that you're doing so in the most economical way possible, get in contact with South Philly Team to discuss your options. We'll discuss the home buying process with you and whether a 3-2-1 buydown is the right fit for you. Fill out our new home buyer form online or give us a call at (215) 360-3434 to discuss your homebuying options today.

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