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So let’s say you want to buy a home, but—like the rest of the country—you’d prefer a bargain when it comes to your mortgage payment. With budget-loving programs like down payment assistance saying the long goodbye as of October 1st, what can homeowners and homeowner hopefuls do to ease into a new mortgage payment?

Enter the temporary rate buy-down, taking homeowners nationwide by storm. Some lenders are offering a temporary buy-down version of FHA mortgages. What’s a temporary buy-down? Basically, the program will provide clients who are purchasing a home with a reduced interest rate for up to the first two years that they’re in their home.

Choose from two FHA Rate Buy-Down Options

The FHA Rate Buy-down, sometimes referred to as an FHA Rate Break, is available on most FHA purchase mortgages. Clients can choose from a 2-1-0 buy-down and the new lender-paid 1-0 buy-down on a 30-year fixed mortgage. That’s a lot of jargon—so don’t worry, we’ll explain.

The 2-1-0 FHA Rate Buy-Down

The 2-1-0 program simply means your interest rate for the first year in your home will be 2% lower than you regular rate, then the next year it’ll be 1% lower, then on the third year your rate will return to the normal rate for the remainder of your mortgage term. (Hence the “2-1-0” reference.)

To clarify, here’s an example. If your loan amount is $200,000 at a 6.99% rate for a 30-year fixed rate FHA loan, with the 2-1-0 program your rate could be:
Year 1: 4.99%
Year 2: 5.99 Year 3: Adjusts to 6.99 for the remaining term of the loan

Who pays?
With the 2-1-0 temporary rate buy-down, the transaction is a lot like a down payment on a car. You (the borrower) will put money down at closing in order to get your payment reduced for the first two years. The amount you owe at closing is calculated by adding up the total difference you’ll save over two years between your reduced payment and your normal payment. That amount will be collected at closing and saved in an escrow account to be added to the monthly payment throughout the first two years of the loan.

The Exclusive 1-0 FHA Rate Buy-down

The 1-0 FHA Rate Break is an exclusive program offered as an incentive to buyers like you! Similar to the 2-1-0 buy-down option, the 1-0 FHA rate buy-down gives you an interest rate that is 1% lower than your normal rate for the first year of the loan, and then returns to the standard rate for the remaining term of the loan. But unlike other buy-downs, you don’t have to pay the difference at closing… because your lender pays it for you!

Who pays?
The best part about the 1-0 buy-down is that your lender pays for the buy-down, so homeowners receive even more value! Clients can now take advantage of the exclusive 1-0 option in which your mortgage company reduces your rate and payment for the first year of your loan! Find out more about the 1-0 FHA Rate Break by talking with a Home Loan Expert.

Benefits of rate buy-downs

• It’s perfect for anyone who wants the security of a fixed rate but wants to ease into their payments
• Use the option to help ease into your rate and increase your cash flow for up to two years
• Why buy down your own rate when your lender can buy it down for you? Take advantage of lender-paid buy-downs and get a lower rate at no extra cost!

Who are buy-downs for?

• 1st-time Home Buyers : for extra cash every month to buy furniture and make home improvements, etc.
• If you have sellers concessions that you want to use toward lowering your rate
• If you have tiered income (income that increases with each year of service like teachers, or pilots)
• If you need extra money every month to pay off debt

For more information on temporary rate buy-downs and FHA Rate Break talk to a mortgage professional.

Related Info

• Are you a first-time home buyer? Find all the tools you need to buy a home right here.
• Get a lower rate on your home purchase with FHA Rate Break, exclusively from Quicken Loans, by talking with a Home Loan Expert.
• Find out which loan is right for you with our mortgage calculators!

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