However. . you should be completely sure that this money is well spent. . if you are going to stay in a house for only five years. . spending 3 points (3% of your loan amount) to reduce your payments just a few dollars every month isn't a good investment if you are not staying there for a long period of time.
Make the calculation and decide from there when is your BREAL EVEN DATE
You may be better off to ask the seller in reducing the selling price.
VA specialist most likely can assist you on this! Keep in-mind, VA loan would be stricter on buy downs, and sellers contribution! Please check with your VA Lender first!
Yes there is a maximum that you can buy the interest rate down. But please understand that just becasue the seller is giving you 1-3% it does NOT mean your interest rate will be bought down 1-3%. Lenders work in bps. So it may cost you 3% to buy it down a .5% or even .375% every lender is different. What you can buy the rate down depends on where the current rates are and some lenders will not do off sheet pricing.
If you have the option of doing a VA loan of FHA loan I would definately go VA. Rates are lower and their is no mortgage insurance to pay just a 1 time fee so that will also make your payment lower plus you can borrow 100% of the purchase price plus the closing costs if the seller is willing plus your 1 time fee. FHA you will HAVE to put money down and allows 6% sellers assist.
And as far as using it to buy the rate down or for closing this this will depend on how long you plan on staying inthe house. There have been time where the rate buy down has saved my clients 1000's and other times didn't really make a big difference. If I can be of further assistance please let me know I would be happy to help you 1-800-839-6186x334
Keep in mind that for the seller, a credit costs him money just like a reduction in price. In fact, it may cost him more since his sales commission may be based on the final sales price *before* the seller credit. So, an offer 6% below asking price is the same to the seller as a full price offer with 6% closing help.
Also, I agree with Frank's answer below. Having the seller pickup your closing costs puts real money in your pocket. You may not get a good return from buying down your interest rate. Do the math -- for every point you pay, how much is your monthly payment reduced? For most buyers, your better served by negotiating a lower purchase price -- keep it simple.
I would use the money towards closing costs first, then the loan second. Until rates get up to the 7% range, it's best to use that money for other things before a loan buydown.