How a Temporary Buydown Can Save VA Buyers Amid Rising Rates

A temporary buydown allows buyers to have an artificially lower interest rate for a set number of years. That means a lower monthly mortgage payment, helping Veterans build home equity and savings.

Temporary buydowns have been around for decades. Demand for them declined in recent years, but they’re back again as interest rates climb and home sales sputter.

How a 2-1 Temporary Buydown Works

This is called a 2-1 temporary buydown because your interest rate is 2 percentage points lower for your first year of mortgage payments and then 1 percentage point lower for the second year. As the buyer, payments on your full interest rate (also called your note rate) return starting in the third year.

Your note rate on the loan is always there. But with a temporary buydown, someone else is paying a portion of your interest payment every month for those first two years.

Who Pays for a 2-1 Temporary Buydown?

Veterans United buyers can ask the seller or builder to pay for the buydown. Whatever savings you realize over those first two years represents the cost of the buydown, because that’s how much interest you’re not paying.

Paying for a temporary buydown is what’s known as a seller concession. The VA limits seller concessions to 4% of the loan amount.

That’s usually more than enough to cover the cost of a temporary buydown. But buyers needing the seller to help with closing costs will have less wiggle room because of that concessions limit.

Should You Ask Sellers to Buy Down Your Rate?

While it isn’t exactly a buyer’s market, higher rates are making life tougher for many home sellers. Home sales are falling, and houses are staying on the market longer.

Some sellers and builders will pay for a temporary buydown to get their house sold. Others might not bite. A lot depends on your housing market, your price range and other specific factors.

Talk with a Veterans United loan specialist to see what might be possible in your area.