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 Home > FHA Loan Programs > FHA 2/1 Buy-Down Loan Program

FHA 2/1 Buy-Down Loan Program

FHA Buy-down loans are simply a 30 or 15 year fixed rate mortgages where you (or the seller) have prepaid interest rate buy-down fee's to obtain a 1% or 2% lower interest rate for the first 1 or 2 years.

The advantage of the FHA 2/1 Buy-down is that this lowers your initial monthly mortgage payments and allows you to qualify for a higher sales price home or if you are refinancing an existing mortgage, to further lower the payments. This loan provides you with the benefit of a lower start rate but the stability of a fixed rate loan.

For each of the first one or two years (dependant of if you did a 1/1 or 2/1 buy-down) your loans interest will go up only 1% minimally affecting your monthly payment. Once again, you may "streamline refinance" your loan to a fixed rate mortgage almost anytime.

Following is an example of how the initial "Buy-Down" fee is calculated:

Example: Standard 30 Year FHA Loan

$100,000 Loan Amount

8% interest rate = $8,000 a year in interest.

With the 2/1 buy-down the transaction would be as follows:

$100,000 Loan Amount

1st. year = 6% Interest rate = $6,000 in interest, a savings of $2,000

2nd. year = 7% interest rate = $7,000 in interest, a savings of $1,000

3rd - 30th. year = 8% interest rate = $8,000 in interest

The 2/1 Buy-Down is a normal 30 year loan but you pre-pay for a decreased interest rate for the first two years. So in the above example, the lender would charge $3,000 fee to "buy-down" the loan, since this is the difference in interest. This is just an example of how the loan works and the actual "buy-down" fee will vary based on the loan amount and interest rate.

The benefit of this program is that it will allow for lower payments in first years and will help a homebuyer qualify for a larger loan based on the FHA qualifying guidelines.

Now that you understand the FHA 2/1 Buy-Down loan, learn about ra.gif (855 bytes) FHA loan qualifications.

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