Action taken this week by the Federal National Mortgage Association is expected to make more mortgage money available for "buy-down" financing. In this type of financing, the builder or seller of a house contributes enough cash to give the purchaser a monthly payment below market rates during the early years of the loan.
Fannie Mae, the nation's biggest purchaser of home loans, announced that it will buy mortgages made with buy-down terms, which are being increasingly used. To help potential purchasers avoid mortgages rates in the 15 1/2 percent range, builders, home sellers or even the parents of the buyer give cash to the lender to reduce the payment the purchasers must make during the first few years of ownership. The lower rates usually extend for one to five years.
David Maxwell, FNMA president, said that those plans "reduce or eliminate the early year payment pinch." He added that a mortgage "bought down to 12 1/2 percent would enable a purchaser with $32,000 income to qualify for a mortgage on a $67,000 house with a 10 percent down payment and have a monthly payment of $744 during the early period instead of $887."
The federally chartered, stockholder-owned Fannie Mae purchases mortgage loans from local lenders, thus providing those institutions with more money to make new loans.