First time homebuyer and have a question with interest rate buydown?

Asked by Sjea, 60102 Wed Jun 17, 2009

I am a 1st time homebuyer and aware of the $8000 tax credit and how it can be used as an additional downpayment past 3.5% or interest buy-down. My question is though which is a better deal. We are looking at a possible new townhome in Morgan Hill, McHenry and will probably be between $160,000-175,000. Does buying down interest rate in this price range help drop the monthly mortgage down. Are we talking a few dollars or a few hundred dollars. I know I was approved at 5% interest rate. Also how much can you buy down? .25%?1%? And how expensive is it do buy down these percents?

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Barbara Q.’s answer
Barbara Q., , Bergen County, NJ
Wed Jun 17, 2009
Sjea- Temporary Interest Rate Buydowns are great for first time homebuyers.
You may be able to structure the transaction so that the SELLER funds the Buydown.
The cost for the Seller in this scenario is $3,644.

Purchase Price: $175,000
Down Payment: $6,125.00
Amount Financed: $168,875.00
Monthly Payments:(Principal & Interest ONLY)
Year 1 3.5% Interest rate: $758.33/monthly payment and SAVINGS: $200.52/month
Year 2 4.5% Interest rate: $855.67/monthly payment and SAVINGS: $103.18/month
Year 3+5.5% Interest rate: $958.85

This helps you to ease into homeownership and the lower initial monthly payments allow extra cash for you to furnish your new home.
Good Luck!

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Jason Dipers…, , Haddonfield, NJ
Wed Jun 17, 2009
Hello Sjea,

Yes, you can use the tax credit towards additional down payment or interest buydown. Unfortunately, banks have not decided how to handle this development and are currently not doing it. This was confirmed by a BofA Account Manager on Monday afternoon. Unless anything's changed in the past two days you'll have little luck getting the credit during the transaction. Wells, Chase, etc. follow BofA on these issues so they're likely not allowing the credit either. If anyone knows of someone who's gotten this done please let us know how!

Kind regards,

Jason Diperstein
E Mortgage Management
800.793.9633 ext. 156
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Chris Covalle…, , Chicago, IL
Wed Jun 17, 2009
Hi Sjea, yes you can utilize extra funds towards either a smaller loan size or an interest rate buydown. Based on a $150K loan size as an example the payment difference between the $150K and a $142K loan size at the same rate is ~$46/mth. On the other hand, keeping the base loan of $150K and paying two points (~$3,000) towards lowering the interest rate would gain ~1/2% reduction in rate which would yield ~$47/mth in savings. The answer may be option 2 which would leave you with gaining the equivalent monthly savings and still keeping $5K in your pocket. Please advise if any questions,
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