What Is a 2/1 Buydown and When Does It Make Sense?

A 2/1 buydown is one of my favorite tools when the rate conversation gets tense, because it gives you breathing room while you settle into your new payment. Here is exactly how it works.

With a 2/1 buydown, your interest rate starts 2% below your note rate in year one, then 1% below in year two, then moves to the full note rate in year three and stays there. So if your note rate is 7%, you pay 5% the first year and 6% the second year.

The most common question I get: who pays for that discount? Usually the seller, through a seller credit at closing. The money goes into an escrow account upfront and covers the difference each month. Sometimes a lender credit or your own funds can fund it too. Either way, the buydown is paid for before you make your first payment.

When does it make sense?

• You expect your income to grow. If a raise or a new role is coming, the lower early payments bridge the gap.
• You plan to refinance. If rates drop in the next couple of years, you refinance out and you enjoyed lower payments in the meantime.
• You need a softer landing. New homeowners face moving costs, furniture, and repairs all at once. Lower payments in year one help.

The catch you need to know: your payment will go up in year three. And you still have to qualify at the full note rate, not the discounted one. A buydown is a strategy, not a way around qualifying.

Thinking about a buydown on your purchase? Start your application and I will model your payments year by year so you can see exactly what it looks like.