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
 FHA
loan qualifications.
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