“WHAT IS A ‘BUY-DOWN’? I’VE HEARD THE TERM USED BY SELLERS AND LENDERS A LOT RECENTLY.”

A buy-down is a fairly new (or at least newly popular) incentive in which a seller offers better financing terms on a mortgage rather than a lower selling price on the house. With a buy-down, a seller offers to pay part of a buyer’s future mortgage payments. Often, a seller offers to pay down a certain percentage of a buyer’s mortgage rate in the first few years. For example, with the “3/2/1” buy-down, a buyer’s mortgage rate is reduced three percent in the first year of the mortgage, two percent in the second year, and one percent in the third year—all paid for by the seller. There are other variations on this type of buy-down as well (such as a 2/1 buy-down or a 1/1 buy-down, both of which work in the same way). By getting such a buy-down in the beginning of a loan period, a buyer can use the money saved to furnish or decorate their new home. Other types of buy-downs include ones that last the entire life of the loan and the buyer’s mortgage rate is reduced by a set percentage. In the end, a buy-down can benefit both the seller and the buyer: the seller can generate more interest from potential buyers and the eventual buyer is able to get reduced payments going forward.  ∆