Rising interest rates, decades-long home price appreciation and the tightening of credit availability are providing new obstacles to potential homebuyers – especially first-time homebuyers, buyers with challenged credit and those with non-traditional income. To make homeownership possible for those customers, Carrington Mortgage Services LLC (CMS), a privately held non-bank lender, has expanded its offerings to include 40-year loans and temporary buydowns.
Although not available for conventional and government loans, the 40-year loan is available for all CMS non-QM products. The 40-year term is available for purchase transactions, as well as refinance transactions. For now, the 40-year term is only available on fixed-rate products, but Carrington plans to offer the extended term as an option for adjustable-rate products as soon as possible.
“The 40-year loan adds an additional 10 years to the term of the loan, taking the monthly payment down and improving affordability for homebuyers who need that longer term,” says Greg Austin, executive vice president, mortgage lending for CMS. “We’re able to qualify borrowers on the lower payment, so in addition to reducing their debt ratio, it helps them buy a little bit more property or make sure they’re not overextending themselves.”
Carrington also has introduced temporary buydowns for homebuyers seeking government and conforming conventional loans. Temporary buydowns are when up-front funds paid by a seller are deposited into a reserve account to temporarily reduce the interest rate, as well as the effective monthly mortgage payment, for a specific period of time.
From a cash flow perspective, temporary buydowns can make a lot of sense. In addition to providing greater initial affordability, the temporary interest-rate reprieve can give homebuyers time for interest rates to drop a bit, at which time they might choose to refinance their home at a lower interest rate.
As the housing market transitions from a purely seller’s market to more of a buyer’s market, some sellers might offer to pay for a temporary buydown to incentivize buyers. For now, temporary buydowns are only available for Carrington’s government and conforming conventional purchase loans although the company plans to offer them for its non-QM loan products in the future.