3 Things To Know About a 3-2-1 Buydown
Consider these three things when looking at a 3-2-1 buydown.
How do you utilize the 3-2-1 buydown? Sellers giving concessions to buy your interest rate down is a super hot topic nowadays. What do you do with that money? This is what you want to consider. A 3-2-1 buydown is an option to temporary buy down your interest rate. You can use all seller concessions towards it. You generally need about 3% to 3.5% of whatever your purchase price is of seller concessions for your buydown. Anything extra on top of that goes towards closing costs. Ensure that you understand these few concepts of the program so you can use it correctly:
1. Make sure you understand that it is a temporary buydown. Uniquely, you can permanently buy your interest rate down, and then you also can do a 3-2-1 on top of it. So you can have certain money to get you from a 6.5% to a 6% permanent buydown, so the highest you ever go is 6%. Now with a 3-2-1, it’s going to be that temporary buydown where for your first 36 months, your interest rate will be significantly less than that market rate of 6%. Specifically, your first year will be 3%. The second year will be 4%. In the third year, 5%. That just allows you to set yourself up, understanding that you will never go above your market rate. But your first 36 months, if you're buying a $500,000 house, will save you $26,000 in mortgage payments.
"You can use all seller concessions towards it. "
2. It's never going to be wasted money. If you do a permanent buydown, you are safer 100%, but if, for any reason, interest rates come down faster than you expect, that money's gone. That's wasted money because you're going to refinance anyway. You're going to get a lower interest rate. But with a 3-2-1, if you have remaining money, because it's the seller giving you money to pay a portion of your mortgage, now with that remaining money, it stays in an escrow account. If for any reason, interest rates come down within your 36 months, which happened to be lower than your market rate, and you're comfortable refinancing there, you will use that remaining money. It immediately goes toward the principal. Meaning you never have wasted money in this situation. So like I mentioned, if you're okay with a little bit of risk tolerance, this is a much better option, in my humble opinion.
3. Don’t use this as a crutch to get into a home if you cannot afford the highest market rate in the worst-case scenario. Do not buy that house because you shouldn’t bank on interest rates now. Yes, I can tell you what I believe is going to happen, but don't bank your whole piggybank, all your savings, on having that lower monthly payment if you can't afford that worst-case-scenario monthly payment. I would not buy that property. It's an interesting way to save a lot of money, but if you can't afford that worst-case scenario situation, I would encourage you not to go after that property.
As always, If you have any more questions about this 3-2-1 or would like to get a little bit more specific, I have my professional. He's the best loan officer in all of Phoenix. He's all over the map. We've had him on here a couple of times. Ryan Nelson, he's a 3-2-1 guru, and he's actually doing one for me as we speak. So as always, any questions? Reach out to me. We'll get you in touch with who you need to get in touch. We'll talk to you soon.