Temporary Buydown Guide v2 12.11.23

YOUR EVERYTHING

TEMPORARY BUYDOWN GUIDE

FAQs Internal Use Only

INDEX What is a Temporary Buydown?

What is happening in a Temporary Buydown?

What does a Temporary Buydown look like?

What is a Temporary Buydown NOT? Who can contribute funds to a Temporary Buydown?

How much can be contributed to a Temporary Buydown?

Who does a Temporary Buydown benefit?

Which products are Temporary Buydown eligible?

Which products are NOT eligible Temporary Buydown for?

Where can I find Temporary Buydown in Encompass?

Where can I find Temporary Buydown in Polly?

Where can I find Temporary Buydown on the loan lock?

Where can I find Temporary Buydown on the Disclosures?

WHAT IS A TEMPORARY RATE BUYDOWN? Simply, a Temporary Buydown reduces the monthly payment for your borrower for the first one, two, or three years of their mortgage.

NOTE: A Temporary Rate Buydown does not lower the note rate.

LOUDER FOR THE PEOPLE IN THE BACK

A Temporary Buydown

DOES NOT LOWER THE RATE of a loan.

WHAT IS HAPPENING IN A TEMPORARY BUYDOWN? In a Temporary Buydown, an agreement is being made between the Buyer and the Seller (or Builder).

There’s a document that is signed at closing:

Money is provided at closing by the Seller (or Builder).

Said money goes into escrow.

That money is used to supplement the borrower’s monthly payment during years one and two of the repayment period, meaning the borrower pays a lower monthly payment for the first two years.

During the first year of the repayment period, your borrower’s payment is reduced by 2% BELOW the note rate.

During the second year of the repayment period, your borrower’s payment is reduced by 1% BELOW the note rate.

On year 3 of the repayment period, their monthly payment will return to the monthly payment that reflects their note rate through the life of their loan (i.e. the rate they were approved for).

TL;DR: Rate is not the main character in a Temporary Buydown, the rate is just a means of mathing your way to your borrower’s temporarily supplemented (lower) monthly payment.

WHAT DOES A TEMPORARY BUYDOWN LOOK LIKE?

THIS IS A TWO YEAR:

Note: 1 year and 3 year buydowns will look different

WHAT IS A TEMPORARY BUYDOWN NOT? NOT a way to lower a borrower’s qualifying ratios.

READ: Your borrower must qualify at the note rate.

NOT a permanent buydown of the interest rate.

READ: Your borrower’s payment will return to that of the regular monthly payment that reflects the note rate.

NOT eligible for terms shorter than 1 year or greater than 3.

READ: There is no such thing as a 4-year buydown. Note a 3-year (only available with conventional) may be difficult because of cost.

There is a max of 2 years with government loans.

NOT capable of increasing by more than 1% per year.

READ: You can’t have a temporary buydown that decreases the payment by 3% one year, and 1% the following year.

NOT offered in fractions of a percentage.

READ: You can’t have a temporary buydown of 1.5% in year one, and .25% the following year. Percentages must be in increments of 1.

WHO CAN CONTRIBUTE FUNDS TO A TEMPORARY BUYDOWN? The seller or builder.

HOW MUCH CAN BE CONTRIBUTED TO A TEMPORARY BUYDOWN? Contributions to a Temporary Buydown must comply with the Interested Party Contributions Limits.

WHO DOES A TEMPORARY BUYDOWN BENEFIT? You Because it’s all the rage with agents and builders, and a great reason to meet with them!

The Seller It’s an alternative to lowering the sales price of a home while making it slightly more affordable as their buyers ease into homeownership.

The Buyer For buyers hesitant to commit to a mortgage in a shifting market, a Temporary Buydown allows them to grow into their mortgage payments.

Dogs & Cats This is just a rumor, but we have heard that dogs and cats love them.

WHICH PRODUCTS ARE TEMPORARY BUYDOWN ELIGIBLE? Conventional- Max 3 Year Buydown FHA- Max 2 Year Buydown USDA- Max 2 Year Buydown VA- Max 2 Year Buydown

WHICH PRODUCTS ARE TEMPORARY BUYDOWN INELIGIBLE? ARM’s Refi’s Investment Properties Manufactured Homes

WHERE CAN I FIND TEMPORARY BUYDOWN IN ENCOMPASS? Once you’re in Encompass, go to: Forms Click RegZ – LE Click the Buydown Checkbox Click the dropdown menu & select the Contributor Click Buydown Disbursement

These steps will do your Temporary Buydown math for you.

WHERE CAN I FIND TEMPORARY BUYDOWN IN POLLY?

trick question.

You can’t find the Temporary Buydown pricing reflected in Polly because the note rate is unaffected by a Temporary Buydown.

Were you tricked?

See ‘What is happening in a Temporary Buydown?’

The math for Temporary Buydown can be found in Encompass.

See ‘Where can I find Temporary Buydown in Encompass?’

WHERE CAN I FIND TEMPORARY BUYDOWN ON THE LOAN LOCK?

psyche!

You can’t find the Temporary Buydown on your borrower’s lock because the note rate is unaffected by a Temporary Buydown.

The rate being locked is the note rate – full stop. There is no change to the lock.

Did we get you again?

See ‘What is happening in a Temporary Buydown?’

WHERE CAN I FIND TEMPORARY BUYDOWN ON THE DISCLOSURES? The Buydown fee is placed in Section H of the LE and CD. In the example below, the Seller is paying the Buydown fee.

If the borrower is paying the buydown fee, it would still be placed in Section H.

TL;DR:

Section H

OTHER RANDOM BUYDOWN QUESTIONS

Q: CAN THE LENDER PAY FOR THE BUYDOWN SUBSIDY ON AN FHA LOAN? No. In a Temporary Buydown, the subsidy must be paid by the Seller and cannot be paid by the borrower, lender or any other third party.

Q: IS A ONE-YEAR TEMPORARY BUYDOWN TERM ACCEPTABLE? No. The buydown must be for 2 years and scheduled reductions in the payments must occur annually. For instance, you could do a 1-0 buydown, but you couldn’t do a temporary buydown on just one year of the loan.

Q: CAN I SUGGEST TO MY CUSTOMERS A 3-2-1 TEMPORARY BUYDOWN? Please note that we do not offer 3-2-1 Buydown at Stockton Mortgage.

Q: IF THE BORROWER BECOMES DELINQUENT; CAN THE LOAN BE BROUGHT CURRENT USING THE BUYDOWN SUBSIDY? No portion of the Buydown Subsidy shall be disbursed to pay any delinquency or other amount under the note or mortgage.