Many people who are Veterans are eligible to buy a house with a Arizona VA loan – and they may not be aware that there is a program available that they can “buy down” their interest rate for the first two years.
VA Loan 2/1 Buydown: How It Works
A temporary buydown is an arrangement wherein the property seller, borrower, lender, builder, developer, or real estate agent deposits money to an account so that it can be released each month to reduce the borrower‘s monthly payment during the early years of the mortgage. During the specified period, the borrower‘s effective interest is ―bought down. This will reduce the monthly payment in the early stages of the loan, and may allow the borrower to more easily qualify for the loan.
Borrower must qualify at Note rate unless there is evidence that income to support the application will increase to cover the increases in loan payments. Routine Cost of Living Adjustments (COLA) raises cannot be used for this purpose.
The buydown arrangement can be considered a compensating factor. If the residual income and/or debt-to-income ratio is marginal, the buydown plan (used to offset a short-term debts), along with other compensating factors, may support approval of the loan.
Escrowed funds set up for the buydown may not revert to the party that established the escrow. If the property is sold subject to, or on an assumption of the loan, the escrow must continue to pay out on behalf of the new owner.
VA Loan Buydown Restrictions
- Allowed on purchase transactions only.
- Maximum 1% increase in one year.
- Adjustments may only be one time per year.
- Maximum 2% below note rate
If you are buying a house with a VA loan and think that you may want to participate in the VA 2/1 buydown program be sure to as your lender about it.
It will save you money each month on your monthly mortgage payment.