Lower Your Initial Mortgage Payments With a 2-1 or 1-0 Buydown

Higher interest rates can make the first few years of homeownership more challenging. We offer temporary buydown options that can reduce a borrower’s mortgage rate and monthly payment during the first one or two years of the loan.

Our 2-1 and 1-0 buydown programs are available with eligible conventional, FHA, and VA purchase loans. The cost of the temporary rate reduction is paid through seller or builder concessions, allowing buyers to ease into their full mortgage payment without changing the loan’s permanent terms.

How Does a Temporary Buydown Work?

A temporary buydown reduces the effective interest rate during the beginning of the mortgage term.

With a 2-1 buydown, the rate is reduced by 2% during the first year and 1% during the second year. Beginning in the third year, the borrower pays the full payment based on the mortgage’s note rate.

With a 1-0 buydown, the rate is reduced by 1% during the first year. The full note-rate payment begins in the second year.

For example, if the permanent note rate is 7%, a 2-1 buydown would provide an effective rate of 5% during the first year, 6% during the second year, and 7% for the remaining term.

Program Highlights

• 2-1 and 1-0 temporary buydown options
• 30-year fixed-rate mortgages
• Non-standard loan terms may be available
• Primary residences only
• Purchase transactions only
• Single-family residences, PUDs, and condominiums
• Conventional, FHA, and VA financing
• Fannie Mae and Freddie Mac eligible programs
• High-balance loan options available
• Fannie Mae HomeReady financing available
• Freddie Mac Home Possible financing available
• FHA DPA Pro and eligible down payment assistance options
• Eligible CalHFA conventional and FHA programs
• 24-month buydown term for eligible 2-1 programs
• 12-month buydown term for eligible 1-0 programs
• Buydown funds paid through seller or builder concessions
• Seller-concession limits vary by loan program

Borrowers Must Qualify at the Full Note Rate

Although the borrower receives a reduced payment during the temporary buydown period, qualification is based on the loan’s full note rate, not the temporarily reduced rate. This helps confirm that the borrower can afford the regular mortgage payment once the buydown period ends. The interest rate stated in the mortgage documents does not change. Instead, funds contributed by the seller or builder are placed into an account and used to cover the difference between the reduced payment and the full scheduled payment during the buydown period.

A Valuable Seller-Concession Strategy

Temporary buydowns can be particularly useful in a market where sellers or builders are willing to offer concessions. Instead of using those funds solely toward closing costs, an eligible buyer may be able to apply them toward lower mortgage payments during the early years of homeownership. This can provide additional breathing room while the buyer adjusts to expenses such as moving, furnishing the home, maintenance, property taxes, and insurance. We help buyers, real estate professionals, and sellers determine whether a 2-1 or 1-0 buydown is available for a particular transaction. We will review the loan program, property type, seller-concession limits, and qualification requirements to structure the most appropriate financing option.