How does a 2-1 buydown work?
The builder deposits funds at closing into an account that covers the difference between the reduced payments and the full payment for the first two years. If your note rate is 7%, you'd pay as if it were 5% in year one and 6% in year two, then 7% for the remaining 28 years. Lenders qualify you at the full note rate.
| Year | Rate paid (7% note) |
|---|---|
| 1 | 5% |
| 2 | 6% |
| 3–30 | 7% |
How does a permanent buydown work?
The builder pays discount points to the lender in exchange for a lower rate for the full term. Each point equals 1% of the loan amount; how much rate reduction a point buys varies by lender and market. Ask for pricing at several point levels so you can compare.
Which is better?
- Temporary buydown: helps the first two years' budget, good if you expect income to rise or plan to refinance — but refinancing isn't guaranteed.
- Permanent buydown: lowers the payment for as long as you keep the loan, usually the better value if you'll stay long term.
- Price reduction: lowers the loan amount, property taxes and the down payment needed; sometimes worth more than either buydown.
Frequently asked questions
Sources
- Fannie Mae Selling Guide (B5-3.1, Construction-to-Permanent Financing; B3-4.1, Interested Party Contributions)
- Freddie Mac Single-Family Seller/Servicer Guide
- HUD Single Family Housing Policy Handbook 4000.1
- VA — VA-backed purchase loans
- CFPB — Buying a house: tools and resources
Data last updated October 24, 2026.
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Figures on this page are estimates for educational purposes only and are not a loan offer or commitment to lend. Rates, loan limits, fees and assistance programs change frequently and vary by lender, location and borrower profile. Confirm current terms with a licensed loan officer.