Are the current interest rates preventing you from buying a new home? What if you could get a lower rate? New Home Inc. lets you reduce your mortgage rate with our 3-2-1 rate buydown program.

What is a rate buydown?

A mortgage rate buydown is a program that allows borrowers to secure a lower interest rate by paying what’s known as “discount points” at their closing. Also called mortgage points or prepaid interest points, these points are a one-time fee that home buyers pay upfront. By doing so, you can reduce the interest rate for your loan term. 

For every 1% of the home loan you pay in discount points, you lower the rate by roughly 0.25%. If you’re obtaining a mortgage for $450,000, for example, and your current interest rate is 7.875%, then $4,500 (1% of $450,000) lowers the rate to 7.615%.

But right now, you can buy a new home and reduce your rate as much as 3% below normal rates with our rate buydown program. AND New Home Inc. pays up to $20,000 for the buydown, so there’s no cost to you!

How does a buydown work?

This financing option is a tiered pricing program. For some buyers, reducing the rate in the beginning of the loan is the best way to achieve the funding they need. For others, there might be better options that allow them to save more money while paying off their home. 

There are two common types of rate buydown programs: a 3-2-1 and a 2-1. In either plan, you reduce the interest rate in the first year of your loan. The rate goes up a little annually—for the next 2 years if you choose a 3-2-1 rate buydown or for the second year if you decide on the 2-1 rate buydown.

A 3-2-1 mortgage rate buydown lowers your interest rate by 3% in the first year of your loan. In the second year, the rate is lowered by 2% (which is 1% more than the interest rate in your first year). Then, in the third year, the rate is lowered by 1%.

Let’s say the current rate is 7.875% APR. Here’s how your interest rate works with a 3-2-1 rate buydown on a 30-year fixed rate mortgage:

Year 1 4.875%

Year 2 5.875% 

Year 3 6.875%

Years 4-30 7.875%

With a 2-1 mortgage rate buydown, you reduce the interest rate on your loan by 2% (2 points) for the first year.. The second year, that rate is reduced by 1%. From the third year until the end of the loan term, you pay the full interest rate.

Year 1 5.875%

Year 2 6.875% 

Years 3-30 7.875%

The lowest rate on your buydown often lasts just one year, but you can make some buydowns last for the full duration of your mortgage. While New Home Inc. is offering up to $20,000 to reduce your rate, you also have the option to purchase extra points upfront from your lender. Or, you can pay those points to your lender over a designated period of time. 

The only caveat? Lenders aren’t lowering the interest rate for your benefit only. They must find a way to make up for the money they’re essentially losing over those first two years, and they’ll do so by charging borrowers an extra fee. 

Both a buyer and a seller can purchase a buydown. Sellers and builders will often cover the cost and use this approach to attract prospective buyers. There are two options:

• Purchasing the buydown via mortgage points

• Purchasing the buydown as a lump sum, put in an escrow account with the lender

If buyers choose the lump sum option, their payments will be used to subsidize their reduced monthly payments. 

What if I decide to refinance during the rate buydown term?

If you choose the 3-2-1 rate buydown that New Home Inc.is offering, the money for the buydown is held in escrow. The funds pay down the rate on a monthly basis. If you decide to refinance your home before the 3-year period ends, you can apply that escrowed money to offset the cost of your refinance.

What are the pros of a rate buydown?

Are you thinking about pursuing a rate buydown? If so, here are the top benefits you need to know. 

You can save in the first years.

Do you anticipate that your income will rise from one year to the next? If so, look into a 2-1 buydown. The financing structure will help you bide your time and allow you to save as much as possible before your mortgage payments reach their full amount. 

Keep in mind, though, that you should be fully confident in this income increase before using it as a reason to pursue a buydown. 

It can help you sell your home.

Are you having difficulty selling your home? This incentive can be a helpful option if the current selling conditions aren’t working in your favor, and your home has sat on the market for an extended period of time. You can draw additional buzz around your listing and could bring the right buyers to your doorstep, because this type of mortgage is more affordable to buyers, at least in the beginning. 

The buydown gets you accustomed to homeownership

For those first 12 months, your monthly payment will be significantly lower. This can help you ease into making regular payments, and allows you to save as much as possible throughout the initial term.

Especially for first-time homebuyers, this can be a good way to slowly grow accustomed to the process of setting aside enough money for your mortgage each month. If you’ve never had to make these kinds of payments before, it can be difficult to balance your budget. With a 2-1 or 3-2-1 buydown, it can be easier to learn the system. 

What are the cons of a 2-1 buydown?

While a rate buydown can help you finance your home, it can also work against you in some cases. Next, let’s take a look at a few of the top drawbacks to consider. 

They aren’t always available.

While 2-1 and 3-2-1 rate buydowns are common, they are not allowed under every type of mortgage program. In addition, not all lenders will offer them, and the terms can differ from one lender to the next. 

For example, you can pursue a 2-1 buydown on a fixed-rate Federal Housing Administration (FHA) loan. However, this option is only limited to new FHA mortgages and does not apply to refinancing loans. Make sure you understand the availability of this option and how all of the terms work before making a decision. 

Luckily, if you’re looking at new homes for sale near Raleigh, the rate buydown is an option offered by New Home Inc. at no cost to buyers!

There’s an upfront cost.

Typically, a mortgage rate buydown is only worth it if you can convince the seller to cover the costs of the escrow deposit. If this isn’t an option, the initial fee can be substantial and could offset any potential savings you make from this setup. 

Review your mortgage options today.

At New Home Inc., we understand that interest rates can be discouraging. But you know what’s even more discouraging? Losing out on the benefits of homeownership. While you’re hesitating, that home you love right now is going to increase in price. And you’ll be losing out on the tax deductions and the appreciation you’ll gain from your investment.

New Home Inc. is building communities of townhomes and single-family homes for sale near Raleigh, including Angier, Apex, Fuquay-Varina, Lillington, and Smithfield.. And each one reflects our Future-Proof approach to visionary design. Our included features surpass those that other builders in Raleigh, NC, provide—or that they consider purely optional. We think healthy homes, smart homes, and homes with more features shouldn’t be an option for today’s homebuyer. 

AND…with the 3-2-1 rate buydown offer, you get even more when you choose New Home Inc!

Contact us at New Home Inc. to learn more about our communities, homes, and helpful financing solutions.