2-1 Buydown
2-1 buydowns: a lower rate for the first two years
With a 2-1 buydown, the buyer's payment is calculated at 2% below the note rate in year one and 1% below in year two, then the full rate from year three on. The cost is paid upfront, usually by the seller as a concession.
Key facts
- Available in
- New York, New Jersey, Florida, Pennsylvania
- Year 1
- Note rate minus 2%
- Year 2
- Note rate minus 1%
- Year 3 onward
- Full note rate for the rest of the loan
- Who pays
- Seller, builder or lender credit, within concession limits
Who it's for
- Listings that have sat and are considering a price cut
- Buyers who expect income to rise
- New development sponsors offering incentives
- Buyers planning to refinance if rates fall
A price cut of $15,000 barely changes a buyer's monthly payment. The same money spent on a 2-1 buydown can lower the payment by several hundred dollars a month for two years. For a seller it can be the difference between another month on market and an accepted offer.
Buyers still qualify at the full note rate, so the buydown makes the first two years easier without stretching affordability. Unused buydown funds are typically applied to the loan if the buyer refinances or sells early, depending on the program.
Questions
How much does a 2-1 buydown cost?
Roughly the total of the payment savings over the first two years. We calculate the exact figure for any price and rate.
Are there limits on seller concessions?
Yes. On conventional primary-residence loans they are 3% of price with under 10% down, 6% with 10-25% down and 9% with more than 25% down. FHA allows up to 6%.
Can it be combined with a CEMA?
Yes. On the right listing, a CEMA and a buydown together can save the buyer money at closing and every month.
Questions about 2-1 Buydown?
A licensed loan officer will walk you through the numbers, usually the same day.