A 2-1 buydown is a useful option for buyers who want lower mortgage payments during the first few years of homeownership, especially in today’s high interest rate market. Whether you’re buying a home in Austin, Texas or looking for a home in Denver, Colorado, this temporary interest rate reduction option can make the early stages of your mortgage more affordable.
This Redfin article details how a 2-1 buydown works, who it’s for, its costs, pros and cons, and how it compares to alternatives like permanent buydowns, ARMs, and seller concessions.
2-1 What is a buydown?
A 2-1 buydown is a temporary mortgage agreement that reduces your interest rate for the first two years of your loan.
First year: Interest rates are 2 percentage points lower. Second year: Interest rates are 1 percentage point lower. After Year 3: Interest on the remainder of the loan reverts to full note interest.
The seller, builder, lender, or buyer pays an upfront fee to “buy down” the interest rate for the first two years, reducing the monthly mortgage payment at the beginning of the loan.
Key takeaway: A 2-1 buydown does not permanently lower your interest rate. Most buyers use this facility to ease their monthly payments or bridge the gap until refinancing becomes an option, but future interest rate reductions are not guaranteed.
2-1 How buydowns work (with examples)
Suppose you want to buy a house with the following conditions:
Loan Amount: $400,000 Note Interest Rate: 6.5% Loan Type: 30 Year Fixed
For a 2-1 buydown, the rates would be:
1st year: 4.5% 2nd year: 5.5% 3rd to 30th year: 6.5%
Compare payments
Annual rate Monthly money and interest 1 4.5% ~$2,027 2 5.5% ~$2,271 3–30 6.5% ~$2,528
Note: These numbers reflect principal and interest only. Full payment (including taxes, insurance, and HOA if applicable) will be more expensive.
Savings:
Year 1: Save ~$501 per month Year 2: Save ~$257 per month Total one-time savings: ~$9,096
Who will pay for the acquisition?
Usually one of the following:
Sellers: Common in buyer’s markets and new construction incentives Builders: Often used to attract buyers in new developments Lenders: May be offered as a promotional incentive Buyers: Can pay for themselves, but this is less common
The cost is equal to the difference between the discounted payment and the full payment in years 1 and 2, and these funds are prepaid into a buydown escrow account and applied monthly to cover payments.
Seller Concession Limits (Quick Reference)
These percentages represent the maximum amount the seller can contribute toward closing costs, including any one-time buyouts. This means that if the seller is providing financing, the buyout must fall within these limits.
Traditional: Typically 3% to 9% depending on down payment FHA: Up to 6% VA: More flexible – no hard % cap, but concessions must be “reasonable”
2-1 Buydown requirements
Even if your payments are lower in the first two years, you must qualify for full note interest.
Common requirements include:
Must meet lender’s credit score and DTI guidelines based on full payment Applies to most conventional, FHA, and VA loans Not available for certain investment properties or specialty programs Seller-paid buyout must be within seller’s concession limits
Advantages and disadvantages of 2-1 buydown
Strong Points
Lower starting payments: Helps buyers absorb the costs of new home ownership and factor in the timing of childcare, renovations, and other expenses. Useful in high interest rate environments: Temporary relief while waiting for potential refinancing opportunities. Attractive seller incentives: Sellers can offer to buy in exchange for a lower list price. Predictable Payment Increases: Unlike ARMs, payment increases are fixed and set in advance.
Cons
Payment Shock in Year 2 and Beyond: Payments increase to the full note rate in year 3, so it’s essential to budget for that change. Rates are not permanently lowered. Even if the rate remains high, it will later remain at the original note rate. You may not always be able to take advantage of seller concessions in the best way. Concessions on closing costs or price reductions may provide longer-term benefits. Must qualify upon full repayment. A lower introductory interest rate will not help you obtain a larger loan amount.
Is a 2-1 buydown worth it?
A 2-1 buydown may be a strong option if:
You expect your income to increase in the next 1-3 years You want to reduce the cost of home ownership You want to refinance when interest rates improve, but you understand that there is no guarantee that interest rates will fall in the future The seller or builder is offering you the home at no additional cost
It may not be the best choice if:
You plan to stay in your home for the long term and want permanent savings You are sensitive to increased payments You may be able to use concessions more strategically elsewhere
2-1 Buydown vs. Permanent Buydown
Features 2-1 Buydown Permanent buydown Temporarily lowers interest rates ✔️ ❌ Permanently lowers interest rates ❌ ✔️ Cost Low prepayment amount High prepayment amount Ideal for short-term relief Long-term savings Can you refinance? ✔️ ✔️
Simple rule of thumb: If you need long-term savings and plan to keep your home for many years, a permanent buyout may be a better option. If you want short-term affordability, choose the 2-1 buydown.
2-1 buydown vs. 3-2-1 buydown
A 3-2-1 buydown reduces your rate by 3% in the first year, 2% in the second year, and 1% in the third year. Because of the longer term, costs are usually significantly higher and require larger seller concessions or builder incentives.
Use when:
Seller/builder offers hefty incentives More space required for first few years
If you want a complete breakdown of the different types of temporary and permanent interest rate buydowns, check out our guide: What is a mortgage buydown?
2-1 Buydown vs. ARM loan
Features 2-1 Buydown ARM (5/6, 7/6, etc.) Low initial rate ✔️ ✔️ Typically lower Rate after intro period Fixed full rate Adjusted based on market predictability High Medium/Low Risk level Low High
ARMs may offer lower starting payments, but the 2-1 buydown provides more certainty. Once reset in the third year, the rate remains fixed rather than adjusting to the market.
2-1 Alternatives to buydown
If you’re not sure if a 2-1 buydown is right for you, consider the following:
Seller concessions on closing costs Permanent rate buydown Adjustable rate mortgage (ARM) Large down payment Shorter loan term (15 years) if affordable Shopping lenders with better pricing
How to decide if a 2-1 buydown makes sense
Ask yourself:
Will my income increase in the next two years? Am I happy to pay in full in year 3? Is the seller paying the purchase price (best case scenario)? Do I plan to refinance? Does my lender offer this program for my loan type?
If the answer aligns with your goals, a 2-1 buydown can be a smart and flexible tool to make early homeownership more affordable.
2-1 Buydown Frequently Asked Questions
1. 2-1 Can I refinance during buydown?
yes. You can refinance at any time. If you refinance early, any unused escrow funds will typically be applied to your loan balance, depending on your lender’s terms.
2. Will a 2-1 buydown affect my credit score?
No, it’s just a payment structure. Your credit report and loan eligibility will not change.
3. Is a 2-1 buydown available to first-time buyers?
yes. Most financial institutions allow it on conventional, FHA, and VA loans.
