1% Down Combined with Temporary Buydown | Low-Down-Payment Mortgage Option

Summary:

If you’re looking for a low-down-payment mortgage option that also lowers your monthly payment for the first two years, you might be interested in Guild Mortgage’s 1% down combined with a temporary buydown. This program lets you buy a home with only 1% down payment, while also reducing your interest rate and monthly payment for the first 24 months. However, there are some eligibility requirements and trade-offs to consider before you apply for this program.

Introduction to Low-Down-Payment Mortgages

Buying a home is one of the most exciting and rewarding things you can do, but it can also be one of the most expensive and stressful. One of the biggest challenges that many home buyers face is saving enough money for a down payment, which is the amount of money you pay upfront when you buy a home. The more money you put down, the less money you have to borrow, and the lower your interest rate and monthly payment will be. However, saving for a down payment can take a long time, especially if you’re renting or have other financial obligations.

Guild Mortgage’s 1% Down Combined with Temporary Buydown

That’s why some lenders offer low-down-payment mortgage options that allow you to buy a home with as little as 3%, 3.5%, or even 0% down payment. These options can help you get into a home sooner and with less money out of pocket, but they also have some drawbacks, such as higher interest rates, higher mortgage insurance premiums, and stricter eligibility requirements.

One of the lenders that offers a low-down-payment mortgage option is Guild Mortgage, which is one of the largest independent mortgage lenders in the United States. Guild Mortgage has recently launched a program that combines two features: a 1% down payment and a temporary buydown. This program lets you buy a home with only 1% down payment, while also reducing your interest rate and monthly payment for the first 24 months.

How the Program Works

Basically, you borrow 99% of the purchase price of the home, and Guild Mortgage contributes another 2% as a grant that does not need to be repaid. This means that you have 3% equity in the home from day one, which is the minimum required for a conventional loan. However, unlike other conventional loans that require a 3% down payment from your own funds, this program only requires 1% from you.

In addition to the 1% down payment, this program also offers a temporary buydown, which is a feature that lowers your interest rate and monthly payment for a certain period of time. In this case, the temporary buydown lasts for 24 months, or two years. During this time, your interest rate and monthly payment will be lower than what they would be without the buydown. After the two years are over, your interest rate and monthly payment will revert to their original levels.

As an example, let’s say you want to buy a home for $300,000 and borrow $297,000 at 4% interest with a 30-year term. Without the buydown, your monthly principal and interest payment would be $1,417. With the buydown, your monthly principal and interest payment would be $1,193 for the first year and $1,305 for the second year. That’s a savings of $224 per month in the first year and $112 per month in the second year.

Eligibility Requirements and Trade-offs

Sounds great, right? Well, not so fast. There are some eligibility requirements and trade-offs to consider before you apply for this program.

One of the eligibility requirements is that you must be a first-time home buyer or not have owned a home in the last three years. You must also have a minimum credit score of 680 and meet certain income and debt-to-income ratio limits. You must also use the home as your primary residence and complete an online homebuyer education course.

One of the trade-offs is that you’ll pay a higher interest rate than what you would pay with a conventional loan without a buydown. This is because the buydown is not free, but rather a cost that is added to your loan amount and amortized over the life of the loan. This means that you’ll pay more interest over the life of the loan than what you would pay with a conventional loan without a buydown. For example, using the same numbers as before, without the buydown, you’ll pay $210,036 in total interest with a 30-year loan at 4% interest. With the buydown, you’ll pay $213,684 in total interest with a 30-year loan at 4.25% interest. That’s an extra $3,648 in interest costs!

Another trade-off is that you’ll have less equity in your home than what you would have with a conventional loan without a buydown. This is because the buydown increases your loan amount and reduces your principal payments for the first two years. This means that you’ll owe more money on your home than what it’s worth for a longer period of time, and you’ll build equity slower. For example, using the same numbers as before, without the buydown, you’ll owe $284,663 after two years with a 30-year loan at 4% interest. With the buydown, you’ll owe $292,041 after two years with a 30-year loan at 4.25% interest. That’s an extra $7,378 in debt!

Is Guild Mortgage’s 1% Down Combined with Temporary Buydown Worth It?

So, is Guild Mortgage’s 1% down combined with a temporary buydown worth it? That depends on your personal situation and goals. If you’re looking for a way to buy a home with minimal money out of pocket and lower your monthly payment for the first two years, this program might be an option for you. But you should also be aware of the eligibility requirements and trade-offs involved. You’ll pay a higher interest rate and have less equity in your home than with a conventional loan without a buydown. You should also compare this program with other low-down-payment mortgage options that might suit your needs better.

Comparing Mortgage Options

One of the ways to compare different mortgage options is to use online tools or consult a mortgage professional to get quotes and pre-approvals from different lenders. You should compare not only the interest rate and monthly payment, but also the annual percentage rate (APR), which reflects the total cost of borrowing including fees and charges. You should also consider the loan term, which is how long you have to pay off the loan; the shorter the term, the higher the monthly payment but the less interest you pay over time. You should also consider the loan features, such as whether it has a fixed or adjustable rate, whether it has a prepayment penalty or an escrow account, whether it has any special benefits or requirements, etc.

Conclusion

Guild Mortgage’s 1% down combined with a temporary buydown is a program that lets you buy a home with only 1% down payment, while also reducing your interest rate and monthly payment for the first 24 months. This program can help you get into a home sooner and with less money out of pocket, but it also has some eligibility requirements and trade-offs to consider before you apply for it. You’ll pay a higher interest rate and have less equity in your home than with a conventional loan without a buydown. You should compare this program with other low-down-payment mortgage options that might suit your needs better.

Remember, buying a home is a significant decision, and it’s crucial to choose a mortgage option that aligns with your long-term financial plans. Take your time, do thorough research, and seek advice from trusted experts to make a confident choice for your first home purchase.