Home Buying in Paramount>Question Details

Raul, Home Buyer in Whittier, CA

2-1 Buydowns & closing?

Asked by Raul, Whittier, CA Thu Sep 18, 2008

we have an FHA loan with a 2-1 buydown that we are about to close in the next couple days...received our estimated HUD-1 settlement and the "discount points" $ amount quoted by my broker on the GFE is not reflected on the estimated HUD-1 as discount points, instead my broker insists that the $ amount has to be listed as a "broker fee", per the lender's requirement? The HUD-1 lists another amount for the buydown, but is noted as POC, Paid outside of Closing.

Is this correct, or was i just given the bait and switch....unfortunately, my broker can't give me a reasonable explanation!

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Robert Chomentowski’s answer
Hi,

A 2/1 buy down is a loan (generally a 30 year fixed) where an extra fee is paid to "buy" the rate down for the first 2 years of the mortgage. For example, if the going market rate is 6%, with a 2/1 buy down you get 4% year 1 and 5% year 2 and 6% for the remaining 28 years of the loan. It can be good for borrowers such as Doctors right out of school, who need to ease into a larger payment and know they will be getting regular raises. But you definately need to make sure from day 1 you can handle the 6% rate in year 3 to 28. This is NOT an ARM, not negative amortization and not interest-only.

2/1 buy downs are only worth while if you are getting the SELLER to pay for the buy down. Generally a 2/1 buy down will cost 2 points. The broker origination fee would have to be on top of those 2 points for the buy down. If your seller is willing to pay for it all, why not? Or better yet you can buy the rate down for the life of the loan.
0 votes Thank Flag Link Sat Sep 20, 2008
CALL ESCROW AND ASK THEM TO EXPLAIN THOSE FEES TO YOU. SINCE THEY ARE THE NEUTRAL PARTY, THEY WILL TELL YOU WHAT THE FEES AND CREDITS ARE FOR.

GOOD LUCK!!
DYANNA
0 votes Thank Flag Link Thu Sep 18, 2008
You have been sold a swamp in south florida as they say. in most cases the broker fee is the brokers commission, it does not affect your interest rate at all, especially on a fha loan were points and rates are set. anything added is to pad the brokers pocket. as well as a discount point means the broker is making less money off the interest rate so they are charging you the fee the bank would have paid them for giving you a highr rate. thats no discount... where you are so close to closing you really dont have time to shop around, but for everyone else, this is why you talk to more than 1 mortgage broker as how much they make is relative to how much they want to charge you. good luck raul
Web Reference: http://www.ScottSellsNH.com
0 votes Thank Flag Link Thu Sep 18, 2008
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