1. Permanent Buydowns (aka points, origination fees, discount points, or lender fees): These are paid to permanently reduce a borrower’s interest rate by compensating a lender up front for the lost “rebate”, or lost commission, from selling a loan that contains a lower interest rate.
So, permanent buydowns go directly into the lender’s pocket and can be paid by buyers or sellers.
These are the buydowns that most of us are familiar with, and we generally advise buyers not to pay for them.
2. Temporary Buydowns: $0 goes to the lender. 100% of the money goes to the buyer.
A temporary buydown is literally an escrow account set up by the sellers to pay the buyer’s mortgage down every month.
(Disclaimer: this is the way temporary buydowns work at JVM Lending - other banks/lenders may have different products and processes).
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