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You've found the neighborhood where you want to live and have pinpointed two or three attractive houses in the area.

The trouble is, you've already talked to a lender and found you won't qualify for a mortgage on any of them.Don't give up yet. Even if the sellers aren't willing to lower their prices enough to help you, they might consider subsidizing your mortgage payments for a couple of years through a "buy down."

Dave Hershman, a vice president of Residential Mortgage Corp., of Alexandria, Va., says the idea has caught on across the country, especially in slow markets where houses are hard to sell.

It works like this: a seller agrees to deposit a set amount of money into an escrow account. The money is used to reduce the buyer's monthly mortgage payments for a year or two - or even three.

For example, say the house you want costs $110,000 and you can make a down payment of $10,000. You make a bid on the house and the seller accepts.

You apply for a 30-year mortgage with a fixed interest rate of 9.5 percent, with monthly payments of $841. But the lender says you don't make enough money to qualify for the loan. The deal is about to fall through.

The seller, knowing that credit-worthy buyers are scarce, doesn't want to lose you. He agrees to "buy down" your mortgage for two years, so that your payments in the first year will be only $700 and your payments in the second year $770.

By the third year of the mortgage, you expect your income will have risen enough that you can afford the regular mortgage payment of $841.

How much would this cost the seller?

In the first year, the subsidy would be $141 a month or $1,692 for the year. In the second year, the subsidy would be $71 a month or $852. The total payments made by the seller would be $2,544.

The seller agrees to the buy down. He could lower his selling price by a comparable amount, but that wouldn't reduce the buyer's payments nearly as much in the first two years of the mortgage. Payments on a mortgage of $97,500 at 9.5 percent interest would be $820 a month.

The buy down also has an advantage over an adjustable rate mortgage since the buyer knows exactly what the payments will be from the start.

A financially savvy real estate agent can help buyers and sellers set up buy downs. Buyers who seek to pre-qualify for a house can write the buy down request right into their contract bids.

Hershman, writing in the industry publication Real Estate Today, says buy downs come in many variations and in most cases, lenders will qualify buyers at the lower, first-year payment rate.

Here's a sample of what's available:

- 3-2-1 buy down. The interest rate is reduced 3 percentage points in the first year, 2 points in the second and 1 point in the third. This also can be done on a "compressed" basis over 18 months instead of three years.

- A 2-1 and 1-0 subsidy, where the payments are reduced for shorter periods of time.

- The numbers don't have to be even but in most cases lenders will not allow a buyer's costs to rise more than 1 percentage point a year. So, if reducing the mortgage payments by 1.5 percent in the first year will allow the buyer to qualify, the seller could set up a 1.5 percent buy down the first year and a .5 percent buy down the second year.

- Some lenders will agree to buy downs on 15-year mortgages and on the popular seven-year balloon mortgages, which have a reduced interest rate for seven years.

- If you can't find a seller to subsidize your mortgage payments, you may find a lender who will. But the lender will make up his costs by charging you a higher interest rate than you otherwise would pay once the subsidy ends.

Hershman says that buy downs can be done on FHA and VA-insured loans, too, but they tend to be more expensive than comparable buy downs on conventional loans.