Here’s another loan program to add to your arsenal of mortgage products. It has been around for years but unless you are “ancient” in this business, you may never have heard of it (unless you have read Chapter 6 of Managing the Mortgage Maze).

2 Extra Loans in the Next 30 Days
Low Cost and No Cost Marketing Techniques.
Some can be applied in minutes!
www.mortgage-marketing-secrets.com

The program I am talking about is a TEMPORARY BUY-DOWN MORTGAGE. You may have clients who like the idea of a lower payment but are nervous about taking a Adjustable Rate Mortgage. Higher interest rates down the road, negative amortization and slower reduction of principal may turn off some of your borrowers. This program may be the answer.

Never heard of it? No account rep ever mentioned it? You have never seen it on a rate sheet? Well, it is an option that most lenders DO offer… It’s just not advertised. It is a program that is approved by Fannie Mae and Freddie Mac, and it just takes a phone call to your account rep to find out how they structure their temporary buy-down programs.

A Temporary Buy-Down mortgage allows the borrower to qualify at a lower rate for a larger loan amount than that of the 30-year fixed without the drawbacks of a one-month ARM or interest-only ARM. It offers the best of both worlds: qualifying at the low start rate of an ARM along with the security of a long-term fixed rate.

Also, unlike a traditional ARM product, the interest rate will only increase by 1% a year instead of 2% a year.

The most common buy-down is called a 3-2-1 buydown. This means in the first year of the loan, the interest rate is 3% lower than the Note rate.

The second year, the interest rate is 2% lower than the Note rate. In the third year of the loan, the rate is 1% lower. After the third year, the loan will become fixed at the Note rate for the remainder of the loan term. The interest rate of the loan will be the rate the buy-down was based on when the loan was originated.

EXAMPLE

The base fixed rate being used is 6.5%. The buy-down would be structured like this for a 3-2-1 buydown:
Year 1 – 3.5% interest rate
Year 2 – 4.5% interest rate
Year 3 – 5.5% interest rate
Years 4-30 – 6.5% interest rate

The borrower, seller, lender or a combination of any of these can subsidize a temporary buy-down. Lender-subsidized buy-downs mean the borrower does not have to pay a fee to lower the rate for the first 3 years of the loan. Lenders recoup their costs by charging slightly higher interest rates to offset the subsidy.

So check it out… This may be just the option for those clients nervous about the one month or interest-only ARMS.

©2004, Jeannine Doyle, D&S Publications. Jeannine Doyle has turned her 25+ years experience into manuals and CDs that explain the complexities of lending in plain language for loan officers, real estate agents, students, and those considering a career in lending. This article is an excerpt from Managing the Mortgage Maze. For more about this comprehensive guide, visit www.MortgageMazes.com. Jeannine is a member of the National Advisory Council for GoGetLoan.com. Visit her page here.