Takeout Commitment & Buydown

Takeout CommitmentThe Problem: Construction lenders want their money back quickly (in 1 year). They don't want to hold a 30-year loan.The Solution: A Takeout Commitment is a written promise from a second lender (a permanent lender) to pay off the construction loan once the building is certified as complete. It "takes out" the temporary lender.BuydownThe Concept: A financing technique used to reduce the monthly payments for the first few years of a loan.How it works: Someone (usually a home builder trying to sell homes) pays a lump sum to the lender at closing.Example (2-1 Buydown):Year 1: Interest rate is reduced by 2% (e.g., 4% instead of 6%).Year 2: Interest rate is reduced by 1% (e.g., 5% instead of 6%).Year 3+: Rate returns to the full note rate (6%).Why? It helps buyers qualify for the loan and eases them into the full payment.