This is an interesting type of mortgage loan and mortgage scenario. The home mortgage loan rates are lowered on these loans, but the lowering of the home mortgage loan rates is not the mortgage lender’s doing. The seller of a home pays the mortgage company the difference of the home mortgage loan rates that the lowered home mortgage loan rate would cause, therefore, the mortgage company is not losing any money off of home mortgage loan rates. An example could be a 2-1-1 buy down, where the seller buys down the home mortgage loan rate 2% the first year, 1% the second, and 1% the third. After that, the home mortgage loan rates return to normal.
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Reference text: Mortgage Loans: What’s Right for You?, by James E. Bridges with Deborah J. Bridges. Copyright 1989, Published by Betterway Publications, Inc., Crozet, VA