What is a 2-1 rate buy down? I’m SO glad you asked! ;)
You have likely heard this buzzword floating around in real estate circles lately, and it can be a little confusing to fully understand what it means. Since the beginning of time (or interest rates ;)), home buyers have always had the option to buy down their rate, typically using extra closing cost funds. However, since rates have gone up so drastically in the last year or so, there have been some new programs that have rolled out, typically called “2-1 Rate Buy Down”.
A 2-1 Rate Buy Down simply means that yes, you buy the rate down, but for only two years. So if you for instance had a 7% interest rate, you could use this program to buy down your rate to 5% for the 1st year of your mortgage, then it jumps to 6% for year two, and you won’t have to pay that full 7% on the mortgage until year 3. However, the buyer can refinance at anytime during the first 2 years should rates drop, at no charge, or of course sell the property. The money remaining in escrow goes back to the buyer when the refinance or sell their home.
The main tricky part with this program is that typically the seller has to pay this fee, and it can be pricey depending on the sales price of the property, but usually around $9k-$20k. Hope this was helpful information, should you have any questions please reach out to any of our team members and ask for our lender list, we can send you over to some folks who can walk this through with you even better!
-Kristen
