Home Loans
Temporary Buydowns
Rates are higher than they were a few years ago. A temporary buydown lets you start with a lower rate and lower payment for the first one to two years, giving your income time to grow or the market time to shift before your rate settles to the full note rate. Often paid for by the seller as a concession.
2-1
Most Popular Buydown Structure
Seller
Can Pay for It
Lower
Early Payments
What Is a Temporary Buydown?
A temporary buydown is a financing structure where an upfront sum of money is deposited into an escrow account to subsidize your mortgage payment for a set period — typically one or two years. That money is used to make up the difference between your actual payment and a reduced payment based on a temporarily lower rate.
The most common structure is a 2-1 buydown, where your rate is effectively 2% lower in year one and 1% lower in year two before settling to the full note rate in year three and beyond. A 1-0 buydown lowers the rate by 1% for just the first year. The funds to cover the buydown are often contributed by the seller as a concession, which means you get the benefit of lower early payments without necessarily paying for them out of pocket.
Ready to Get Started?
Let's See If a Buydown Makes Sense for Your Purchase
No pressure, no runaround. Todd and Aaron will run the numbers and show you exactly what a buydown would look like for your situation.
Key Benefits
Lower Payments in Year One and Two
A 2-1 buydown reduces your effective rate by 2% in year one and 1% in year two. Real savings on your monthly payment when they matter most.
Seller Can Fund the Buydown
In many transactions sellers contribute funds toward the buydown as a concession. You get the payment relief without necessarily coming out of pocket for it.
Buys Time for Rates to Shift
If rates drop during the buydown period you can refinance into a better rate. If they do not, you have still benefited from reduced payments while you settled in.
You Qualify at the Full Rate
You are underwritten at the full note rate so when the buydown period ends there are no payment surprises. What you qualify for at the start is what you can sustain long term.
Who Is It For?
Temporary buydowns work well for buyers who qualify for a home at current rates but want some breathing room in their early payments as they settle into the new mortgage. They are also a useful tool in a slower market where sellers are more willing to contribute concessions to close a deal.
A buydown is worth exploring if:
- You expect your income to grow over the next one to two years
- You are stretching to qualify at current rates and want lower early payments to ease the transition
- The seller has agreed to contribute concessions and you want to use them strategically
- You believe rates are likely to fall and want to bridge to a future refinance at lower cost
- You are buying a new construction home where builders commonly offer buydowns as an incentive
Good to Know
A temporary buydown is different from buying down your rate permanently with discount points. Discount points permanently lower your rate for the life of the loan. A buydown lowers your effective payment for one to two years only, with the subsidy coming from an escrow account funded at closing.
You are underwritten at the full note rate either way, so you must qualify for the permanent payment regardless of the buydown period.
2-1 Buydown Example
Year 1:
Rate minus 2%
If your note rate is 7%, year one feels like 5% and year two feels like 6% before settling to 7% in year three. The escrow account covers the difference each month.
How the Process Works
Decide on the Buydown Structure
Todd and Aaron run the payment comparison for a 2-1 and 1-0 buydown alongside your standard payment so you can see exactly what each option saves you and what it costs to fund.
Negotiate Seller Contribution
If the seller is offering concessions, we structure the request so the buydown funds come from the seller contribution. Todd and Aaron will advise on how to make the ask and how much to request based on the cost of the buydown.
Qualify at the Full Note Rate
Underwriting is based on the permanent rate, not the buydown rate. You must qualify for the full payment. This protects you from payment shock when the buydown period ends.
Funds Are Deposited at Closing
At closing, the buydown funds are deposited into an escrow account managed by the servicer. Each month during the buydown period, those funds are applied to make up the difference between your reduced payment and the full payment.
Year Three and Beyond at Full Rate
The buydown period ends and your payment settles to the full note rate. If rates have dropped by then, Todd and Aaron will help you evaluate a refinance into a lower permanent rate.
Cost to Fund a 2-1
2-3%
of the Loan Amount
On a $400,000 loan that is roughly $8,000 to $12,000 in buydown funds. When that comes from a seller concession rather than your own pocket, the cost-benefit math looks very different. Todd and Aaron will calculate the exact cost for your purchase.
Worth Knowing
If You Refinance Early the Balance Comes Back.
If you refinance or sell during the buydown period, any remaining funds in the escrow account are returned to you as a principal credit. You do not lose the unused portion of the buydown.
Common Questions
Is a temporary buydown the same as an adjustable-rate mortgage?
No. A temporary buydown is a fixed-rate loan with a subsidized payment for the first one to two years. Your actual note rate never changes. An adjustable-rate mortgage has a rate that adjusts based on a market index after the fixed period. With a buydown you always know what your payment will be in year three and beyond because the underlying rate stays the same.
Can the seller actually pay for my buydown?
Yes. Seller-paid buydowns are one of the most common ways this product is structured right now. Sellers who want to move a property can offer to fund the buydown as a concession rather than reducing the price. For a buyer, that often creates more value because the payment savings during the buydown period can exceed the benefit of a straight price reduction.
What happens to the buydown funds if I sell or refinance early?
Any remaining balance in the buydown escrow account is returned to you as a principal credit when you sell or refinance. You do not lose the unused portion. This makes a buydown even more appealing if you anticipate refinancing within the first two years as rates improve.
What rate do I qualify at during a buydown?
You qualify at the full note rate, not the reduced buydown rate. Lenders underwrite based on your ability to make the permanent payment so there is no payment shock risk when the buydown period ends. The buydown simply subsidizes your early payments from the escrow account while underwriting treats you as if you are making the full payment from day one.
Is a buydown better than buying discount points?
It depends on your goals. Discount points permanently reduce your rate for the life of the loan and make sense if you plan to stay in the home long-term. A temporary buydown reduces your early payments for a set period and is better suited to buyers who expect to refinance or whose income will grow. Todd and Aaron will model both scenarios so you can compare the real cost and benefit of each option for your situation.
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