A FHA 2-1 buydown can provide borrowers with a way to get a more affordable monthly payment on the front end of their mortgages. This is a type of buydown that allows borrowers to pay an upfront fee in order to lower their interest rate for the first three years of their mortgages.
How it Works
With this program, the borrower is going to be able to reduce their interest rate by two percent for the first year of their mortgage. In the second year, they are going to be able to reduce the interest rate by one percent. After the second year, there will be no interest rate reduction for the remainder of the loan.
With this FHA loan program, borrowers can save some substantial amounts of money for the first two years of their mortgages. When you reduce a mortgage interest rate by two percent, this is going to decrease the monthly payment substantially. The next year, they will have a slightly higher payment, and then they will have to make a full payment for the rest of the mortgage. This allows them to work their way up to a larger payment.