How does a 2-1 Rate Buydown work?

During the past couple of years, the housing market has been red hot and buyers often had to pay well above the asking price to have their offer accepted. Additionally, the transaction was all on the seller’s terms. And while the housing market is still strong today, it has cooled off, giving buyers the opportunity to negotiate better prices and terms.

Although buyers have more negotiating power today, mortgage rates have risen. One way to navigate through this time is to use a program called a 2/1 buydown, which offers lower interest rates for the first couple of years.

Why would a seller agree to a seller credit?

Instead of negotiating a lower price from the seller, you can request the seller to pay the cost of a 2/1 buydown. This gives you the opportunity to get the home of your dreams at a payment that is much more affordable, with the possibility to refinance in the future at a more attractive rate.

Seller Benefits:

  • Seller credits help a home sell faster in buyer markets.
  • Price Reductions are costlier to a seller than credits.
  • Innovative “Good Will” to support a new homeowner adjusting to homeownership

Buyer Benefits:

  • Allows the buyer to ease into homeownership by paying below fixed-rate payments.
  • Does not increase the loan amount. The loan amount amortizes as a standard fixed-rate loan.
  • Safe way to take advantage of a lower payment in a rising rate environment

Calculate your savings with our 2-1 Buydown Calculator

2-1 Buydown Example:

Our new 2-1 Buydown Program reduces your interest rate by 2% the first year of the mortgage, by 1% the second year of the mortgage, and returns to the original rate at which the loan was locked the third year. With a 2-1 buydown, buyers have reduced payments for the first two years of homeownership.

  • If your normal rate is 5.75% (as an example)
  • YEAR ONE: The rate would be 3.75%
    (payment is based on this rate for the first 12 months)
  • YEAR TWO: The rate would be 4.75%
    (payment is based on this rate for months 13-24)
  • YEAR THREE: The rate would be 5.75%
    (payment is based on this rate for the remainder of the term)

Program Details:

  • All standard product types are eligible, including Conventional, FHA, USDA, and VA programs. 
  • Only available for purchase loans 
  • Fixed-rate only 
  • Single-unit properties only 
  • Loan types not eligible: Investment properties, refinance, HomeReady, Home Possible, construction, and renovation. 
  • Additional terms and conditions apply.

Take advantage of reduced interest rates for the first two years in your home. Contact us today to qualify and find out how much you can afford!

Get approved to buy a home.

Buying a new home or refinancing your current loan? Fill out this form and get started today!


Recent Articles & Tips