Temporary Buydowns and Affordability
This paper is directed to a neglected aspect of the problem of home ownership affordability: the impact on affordability of temporary buy downs. A temporary buydown is an option offered to home buyers to reduce the mortgage payment in the early years of the loan. The borrower allocates cash up front to an escrow account from which funds are withdrawn monthly to supplement the borrower's mortgage payment.Temporary buydowns are underused partly because of the difficulty of determining whether, in any particular case, they will increase affordability. This paper develops a new instrument called the maximum affordable mortgage (MAX) which automatically allocates the buyer's available cash between buydown, down payment and other uses in a manner which maximizes affordability for the buyer, subject to whatever underwriting constraints the investor wishes to impose on payment graduation and/or the total size of the buydown.The lender originating the MAX must be able to solve a complex algorithm at the point of sale, but the complexity is all behind the scenes. Using a computer, a loan officer can quickly find the cash allocation that maximizes affordability. The power of the MAX in increasing affordability may be enhanced if it is combined with a buyup wherein the lender trades off lower points against a higher rate. Copyright American Real Estate and Urban Economics Association.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Volume (Year): 22 (1994)
Issue (Month): 3 ()
|Contact details of provider:|| Postal: Indiana University, Kelley School of Business, 1309 East Tenth Street, Suite 738, Bloomington, Indiana 47405|
Phone: (812) 855-7794
Fax: (812) 855-8679
Web page: http://www.blackwellpublishing.com/journal.asp?ref=1080-8620
More information through EDIRC
|Order Information:||Web: http://www.blackwellpublishing.com/subs.asp?ref=1080-8620|
When requesting a correction, please mention this item's handle: RePEc:bla:reesec:v:22:y:1994:i:3:p:479-496. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wiley-Blackwell Digital Licensing)or (Christopher F. Baum)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.