2-1 Temporary Buydown
Predictable Payments
Choose a fixed-rate loan and lock in your interest rate for the life of the mortgage, making budgeting simple.
Flexible Loan Terms
Conventional loans can be structured with varying lengths and repayment terms, giving you more control over your monthly payment.
Competitive
Rates
Qualified borrowers may enjoy lower rates compared to government-backed loans, saving thousands over the life of the loan.
Property
Versatility
Conventional loans aren’t limited to primary homes, they can be used for vacation properties and investment homes too.
What Is a 2-1 Buydown?
A 2-1 temporary buydown is a financing option that allows borrowers to reduce their interest rate for the first two years of their mortgage. In year one, the interest rate is reduced by 2%, and in year two it’s reduced by 1%. By year three, the loan returns to the original fixed rate for the remainder of the term.
This type of loan is especially useful for buyers who expect their income to grow in the near future or want lower payments during the early years of homeownership.
How It Works
With a buydown, a lump sum or subsidy is deposited into a buydown account, which is then applied to lower your effective interest rate during the first two years. The funds may come from the borrower, the seller, or even the builder as part of closing negotiations.
Because the payments gradually step up to the permanent rate, borrowers enjoy immediate savings and a smoother transition into their long-term payment schedule.
Cost and Qualification
The cost of a 2-1 buydown equals the difference between the regular mortgage payment and the reduced payments in the first two years. In year one, your rate is lowered by 2%; in year two, it drops by 1%; and from year three onward, it returns to the original fixed rate. The funds to cover the difference are placed in an escrow account at closing and applied each month toward your payment.
Buydowns can be arranged by either the buyer or the seller, but they are only available on new mortgages and certain fixed-rate FHA loans—not for refinancing.
For example, consider a $720,000 loan at 6% for 30 years: the standard monthly principal and interest payment would be $4,316.76. With a 2-1 buydown, the payment in the first year drops to $3,437.39 (a savings of $879.37 per month, or $10,552.44 for the year). In the second year, the payment rises to $3,865.12 (saving $451.64 monthly, or $5,419.68 for the year). Starting in year three, payments return to the full $4,316.76.
Remote Work Office
Vitae consequat augue. Vivamus eget dolor vel quam condimentum sodales in bibendum odio urna sit amet. Nisl massa, ultrices vitae ornare sit amet, ultricies eget orci. Sed vitae nulla et justo pellentesque congue nec eu risus.
Who Should Consider a 2-1 Buydown?
This option is best for borrowers who want short-term savings and expect their financial position to strengthen over time. It can also be a smart choice for first-time buyers or those moving into a higher-priced market who want a more manageable start.
FAQ
What is a conventional loan?
A mortgage not backed by a government agency, offered through private lenders, and typically following Fannie Mae and Freddie Mac guidelines.
How is a conventional loan different from an FHA loan?
FHA loans are insured by the government and allow lower credit and smaller down payments, but require mortgage insurance. Conventional loans generally require stronger credit but can be more cost-effective in the long run.
Who qualifies for a conventional loan?
Borrowers usually need a 620+ credit score, stable income, and a reasonable debt-to-income ratio. Larger down payments can improve terms.
How much do I need for a down payment?
Conventional loans start at 3%–5% down, but putting 20% down avoids PMI and may lower your monthly payment.
Can I use a conventional loan for a second home or investment?
Yes — unlike some loan types, conventional mortgages can be used for vacation properties and investment homes.
Ready to Explore Your Options?
With more than 17 years of lending experience, we help borrowers determine whether a 2-1 buydown is the right fit. Our team will guide you through how it works, evaluate the savings, and make sure your loan is structured around your long-term financial goals.
Ready to see if a 2-1 buydown is right for you? Let’s explore your options today.