Buying a house can be a very stressful time in your life. There are a few different things that you should know before you go buy a house, or other real estate, that may be beneficial to you in the long run. One such concept that you need to be aware of is known as a “mortgage buy down.” While this type of mortgage program may not be for everyone, it is certainly worth looking into. This is especially true if you need lower monthly payments to buy the house.
The main reason you would opt into a buy down is if you simply cannot afford to make the payments on a house without one. When you go to purchase a house, you will have to work with a mortgage company who will do a credit history check on you. If you get a good score, you will get a good interest rate. However, if you do not score so high, you will have to pay a bit more per month in interest. The interest is there as a safeguard, just in case you default on payments. They look at the lower credit score as someone who is not as trustworthy at paying their bills, thus the higher interest rate.
One way that people can use a mortgage buy down is by putting a larger down payment on the house. By showing good faith, with a large lump payment at the beginning of your mortgage, you will be awarded a lower interest rate. So by making one large payment, you drastically lower the payments made each month.
Another popular way of lowering monthly payments is by “buying” discount points. Once again, this depends on your credit score. And when you buy these points, you are lowering your interest rate to less than what it would be if you did not buy them. This is the more popular of the two methods.
As with anything, there are potential negatives involved. For example, you are not guaranteed that this will work. If your credit score is too low, they may not take the risk on lending you any money. Finally, sometimes it may not be worth the money to pay the points or lump sum because the payment would not be impacted as much as you would like it to be.
There are many programs that are out there to help you buy a home. Do your homework to find out what works best for you.