Thinking about a vacation place near Traverse City and wondering how to make the payment feel comfortable in the first few years? You have options that can ease cash flow without weakening your long‑term plan. With the right lender coordination, you can use a 2‑1 buydown, pay points for a lower lifelong rate, or ask for seller credits to cover closing costs. In this guide, you’ll learn what each option means, when it makes sense for a second home in Grand Traverse County, and how to write a clean offer that your lender and the seller can approve. Let’s dive in.
The basics: buydowns and credits
2‑1 temporary buydown
A 2‑1 buydown is a short‑term interest subsidy that reduces your mortgage rate by 2 percentage points in year 1 and 1 percentage point in year 2. In year 3, the loan reverts to the original note rate. The subsidy is prepaid at closing and held by the lender to offset your payment during the first 24 months. The note rate does not change; the buydown simply subsidizes your payment.
Permanent buydown (points)
A permanent buydown means you pay points up front, usually a percent of the loan amount, to reduce your interest rate for the life of the loan. The price per point and the rate reduction vary by lender and market. This approach is best if you plan to hold the loan long term and want lower lifetime interest costs.
Seller concessions and credits
Seller credits are funds the seller provides at closing to be applied to your closing costs, prepaid items, and sometimes buydown funds or points. These credits show on the Closing Disclosure, reduce your cash to close, and are subject to program limits. Many lenders count temporary buydown funds against allowable seller contributions.
Second‑home rules that matter in Grand Traverse
Conventional loans are common
Most second‑home buyers in Grand Traverse County use conventional financing. For second homes, lenders often require stronger credit, a larger down payment, and more months of reserves. Seller contributions and buydowns are generally allowed but must fit the program’s caps and lender rules.
FHA, USDA, VA basics
FHA and USDA programs are intended for primary residences, so they are rarely used for vacation homes. VA loans are primarily for primary residences as well and carry occupancy rules that limit second‑home use. If you need flexibility for a true vacation property, conventional or portfolio options are your most likely fit.
Portfolio and local lender options
Regional banks and credit unions sometimes hold loans in‑house and offer portfolio products for second homes. These can be more flexible on buydowns, seller credits, and reserves, though some add extra requirements. In a seasonal market like Grand Traverse County, a lender who regularly underwrites second homes can be a difference‑maker.
Why this matters locally
Northern Michigan’s vacation demand means many purchases are classified as second homes. That triggers tighter underwriting, higher reserve requirements, and more scrutiny on the source and use of credits. Early lender coordination helps you choose the right structure before you write the offer.
When each option makes sense
If you are the buyer
- Choose a 2‑1 temporary buydown if you want lower payments for the first two years. This can help while you ramp up seasonal use, plan for higher income later, or expect to refinance or sell within 2 to 5 years.
- Choose a permanent buydown if you plan to keep the property for 5 or more years and want a lower payment for the life of the loan. This can reduce total interest paid.
- Choose seller credits if you want to lower your cash to close and cover closing costs. Credits can also fund a buydown if the lender allows it.
If you are the seller
- Offering a 2‑1 buydown can attract attention and provide immediate affordability to buyers comparing monthly payments. It may cost less than a price drop that achieves a similar near‑term payment.
- Paying points for a permanent rate reduction is less common but can be useful if the buyer wants long‑term savings and the funds transfer is simpler for the situation.
- Offering closing credits is a straightforward way to help buyers with cash to close, subject to program limits.
Key tradeoffs to weigh
- Temporary buydown pros: instant payment relief for the first two years and strong buyer appeal. Cons: payments step up in year 3, and lenders usually qualify you at the full note rate.
- Permanent buydown pros: lower interest cost for the entire loan term and potential qualification benefits depending on lender rules. Cons: higher upfront cash and a longer payback period.
- Seller credits pros: simple to document and easy to apply to closing costs or buydown funds. Cons: limited by program caps and cannot reduce the required down payment.
Cost comparison: a simple example
Below is a hypothetical illustration to show how a 2‑1 buydown compares to paying points. Use it to frame your conversation with your lender.
- Purchase price: 600,000 dollars
- Down payment: 20 percent (120,000 dollars)
- Loan amount: 480,000 dollars
- Note rate: 6.50 percent (30‑year)
Approximate monthly principal and interest per 1,000 dollars:
- At 6.50 percent: about 6.32 dollars
- At 4.50 percent: about 5.07 dollars
- At 5.50 percent: about 5.68 dollars
Estimated payments and subsidies:
- Payment at 6.50 percent: 480 × 6.32 ≈ 3,034 dollars per month
- Year 1 at 4.50 percent: 480 × 5.07 ≈ 2,434 dollars per month
- Year 2 at 5.50 percent: 480 × 5.68 ≈ 2,726 dollars per month
- Year 1 subsidy: about 600 dollars per month, about 7,200 dollars total
- Year 2 subsidy: about 308 dollars per month, about 3,696 dollars total
- Total 2‑year buydown cost: about 10,896 dollars
Compare to permanent points:
- If 2 points cost 9,600 dollars and reduce the rate by roughly 0.50 percent, the monthly savings might be about 158 dollars. That suggests a payback near 5 years. If you plan to hold the loan longer, points may be more cost‑effective.
What this means for you:
- A 2‑1 buydown buys strong short‑term relief.
- Points can win over a longer time horizon.
- Your lender’s current pricing and rules decide the exact outcome. Always confirm numbers for your specific loan.
Writing a clean offer that your lender will approve
Before you write
- Get a pre‑approval that specifies second‑home financing and confirms the lender allows the chosen buydown or seller credit.
- Verify how the lender qualifies your payment. Most underwrite to the full note rate for second homes.
- Confirm seller contribution maximums for your loan and whether buydown funds count toward that limit.
- Ask for written guidance from the lender on how to fund and document the buydown or credits.
Offer language that works
Use precise, program‑friendly wording so the title company and lender can place funds correctly. For example:
- “Seller agrees to provide buyer a credit at closing of [amount] to be applied to mortgage interest buydown funds in accordance with the lender’s written instructions. Buyer and seller will follow the lender’s buydown form and funding requirements.”
- If offering a general credit, specify “not to exceed [X] percent as permitted by buyer’s loan program.”
- Add a contingency if needed: “Offer is contingent on lender acceptance of the buydown and seller credit.”
Closing details to confirm
- Ensure the lender’s buydown agreement form is completed, showing the payment schedule and required funding.
- Confirm wire instructions and timing for buydown funds so they are present at closing.
- Review the Closing Disclosure to see the buydown or seller credit entered correctly as seller paid.
Pitfalls to avoid
- Vague phrases like “seller will pay all closing costs” without stating whether the buydown is included.
- Assuming buydown funds can be delivered after closing. Lenders usually require funds at or before closing.
- Skipping the step of reconfirming contribution limits for your exact product.
- Counting on a temporary buydown to fix a qualification issue when the lender underwrites to the note rate.
Quick worksheets to guide decisions
Worksheet A: 2‑1 vs points snapshot
Inputs:
- Purchase price
- Down payment
- Loan amount
- Note rate and term
- Points planned and lender’s rate reduction per point
Steps:
- Calculate the monthly payment at the note rate.
- Calculate the payment at note rate minus 2 percent for year 1 and minus 1 percent for year 2.
- Find the monthly subsidy for each year and total the two‑year subsidy.
- Compare that total cost to the cost of points.
- If your expected holding period is longer than the points’ payback, points may make more sense.
Notes:
- Most lenders qualify at the note rate for second homes.
- Ask whether the buydown funds count toward seller contribution caps.
Worksheet B: Points payback
Inputs:
- Loan amount
- Points cost
- Monthly payment at the note rate
- Monthly payment at the reduced rate
Steps:
- Monthly savings = payment at note rate minus payment at reduced rate.
- Payback months = points cost divided by monthly savings.
- Payback years = payback months divided by 12.
Worksheet C: Offer and closing checklist
Pre‑offer:
- Second‑home pre‑approval with written confirmation of buydown and credit rules.
- Seller contribution limits verified.
Offer language:
- State exact dollar amount or “credit up to [X] percent for buydown per lender instructions.”
- Require seller to execute the lender’s buydown agreement and fund per instructions.
- Add a lender‑acceptance contingency if either party wants protection.
Escrow/closing:
- Confirm wire timing for buydown funds.
- Verify the Closing Disclosure shows the credit and buydown correctly.
- Collect the signed buydown agreement.
Post‑closing:
- Check that the servicer reflects the subsidized payments for the first two years.
Local guidance for Grand Traverse buyers and sellers
- Build early with a local lender who regularly underwrites second homes. Ask for written confirmation on reserves, contribution caps, and buydown treatment.
- If you are a buyer, stress‑test your budget at the full note rate so year‑3 payments do not surprise you.
- If you are a seller, compare the total cost of a 2‑1 buydown to a price reduction or a straightforward closing credit. Choose the option that best aligns with your timing and target buyer.
- Keep the paper trail: lender buydown form, wire confirmation, and final closing statement entries. These help avoid last‑minute delays and protect everyone in a seasonal market where timing matters.
Ready to weigh your options for a Grand Traverse County second home and craft an offer that closes smoothly? Our team pairs local insight with hands‑on coordination across lenders, title, and escrow so you can focus on the lifestyle you’re buying.
Connect with a Local Expert at Roberts Real Estate Co..
FAQs
What is a 2‑1 buydown on a second home?
- It is a temporary interest subsidy that lowers your rate by 2 percentage points in year 1 and 1 percentage point in year 2, then returns to the note rate in year 3. The subsidy is prepaid at closing and held by the lender.
Do temporary buydowns help me qualify for a loan?
- Often not for second homes. Many lenders underwrite your ability to repay at the full note rate, not the subsidized payment, so the buydown mainly helps near‑term cash flow.
How do seller credits work on vacation‑home loans?
- Seller credits appear on the Closing Disclosure and reduce your cash to close. They can sometimes fund a buydown or pay points, but they are subject to program limits and lender rules.
Are FHA, USDA, or VA loans good options for vacation homes in Grand Traverse County?
- FHA and USDA are for primary residences, so they are rarely used for vacation homes. VA loans are primarily for primary residences and have occupancy rules that limit second‑home use.
When should I choose paying points instead of a 2‑1 buydown?
- If you plan to keep the property and the loan for 5 or more years, points can lower lifetime interest and may pay back over time. If you expect to refinance or sell within a few years, a 2‑1 buydown can offer stronger near‑term savings.
Can a seller‑funded buydown exceed contribution limits?
- It can if you are not careful. Many lenders count temporary buydown funds toward allowable seller contributions, so confirm exact caps for your loan product before writing the offer.
