Buydowns Expected to Regain Popularity

Buydowns, in which sellers put money toward a buyer's mortgage payments during the first years of the loan, are expected to regain popularity as the housing market slows.

This arrangement often allows sellers to pay an amount less than what they would have shaved off their asking price. Buyers, in turn, benefit from lower monthly payments in the first few years and a lower interest rate, which rises by a percentage point each year until the buyers take over the entire payment.

If the home is to be the buyer's primary residence and the buyer has a credit score of at least 660, Fannie Mae permits lenders to qualify the loan applicant at the first-year interest rate. Buyers of second homes or investment properties must be qualified at the full rate.

Source: Hartford Courant, Kenneth R. Gosselin (11/02/06)