Learn how 3-2-1 buydowns, 2-1 buydowns, and 1-0 buydowns work, who pays for them, and how to negotiate a buydown to lower your mortgage payments in the first years of homeownership.

What is a Temporary Rate Buydown?

A temporary rate buydown is a mortgage financing strategy that lowers your interest rate for the first few years of your loan. Instead of paying the full rate right away, a portion of the interest is prepaid—typically by the seller—so the borrower enjoys smaller monthly payments upfront.

Buydowns are often used as seller concessions in negotiations, especially when the market favors buyers.

How a 3-2-1 Buydown Works

The 3-2-1 buydown provides three years of reduced payments before returning to the full rate:

• Year 1: 3% below the note rate
• Year 2: 2% below the note rate
• Year 3: 1% below the note rate
• Year 4 and beyond: Full note rate

Example: On a 6.5% fixed loan:

• Year 1 = 3.5%
• Year 2 = 4.5%
• Year 3 = 5.5%
• Year 4+ = 6.5%

Because it offers the most savings, the 3-2-1 buydown is also the most expensive for the party funding it. It’s usually negotiated into the purchase contract as a seller-paid concession.

How a 2-1 Buydown Works

The 2-1 buydown is one of the most popular options because it balances savings with affordability:

• Year 1: 2% below the note rate
• Year 2: 1% below the note rate
• Year 3+: Full note rate

Example: On a 6.5% loan:

• Year 1 = 4.5%
• Year 2 = 5.5%
• Year 3+ = 6.5%

This program is often funded by the seller or builder as an incentive to attract buyers. In competitive housing markets, buyers may also request a 2-1 buydown during negotiations instead of asking for a lower home price.

How a 1-0 Buydown Works

The 1-0 buydown provides one year of reduced payments:

• Year 1: 1% below the note rate
• Year 2+: Full note rate

Example: On a 6.5% loan:

• Year 1 = 5.5%
• Year 2+ = 6.5%

Because it’s the least costly, this option is commonly offered by lenders or builders as part of promotional financing packages.

Who Pays for a Buydown?

Buydowns are typically prepaid upfront, and the cost is placed in an escrow account to subsidize your monthly payment difference over time. Funding sources include:

• Home Sellers: A buydown can be used as a seller concession to attract buyers instead of reducing the sales price.

Negotiating a Buydown

Here are practical tips for negotiating a buydown into your mortgage:

1. Request Seller Concessions: Instead of asking for a lower purchase price, negotiate for the seller to pay for a 2-1 or 3-2-1 buydown. This can make the deal more appealing since sellers often prefer covering closing incentives over dropping the list price.
2. Work with Your Agent: Real estate agents can position a buydown as a win-win. Sellers get their asking price, while buyers get lower payments for the first years.
3. Compare Long-Term vs Short-Term Savings: If rates are high today but expected to drop, a buydown helps you save until refinancing becomes possible.

Pros and Cons of Buydowns

Advantages:

• Lower monthly payments at the start of the loan
• Negotiation tool in buyer’s markets
• Helps with affordability while income grows or until refinancing

Potential Drawbacks:

• Payments will increase after the buydown period
• Cost must be covered upfront (by seller, builder, or lender)
• Not always available on all loan types

Final Thoughts

.A 3-2-1, 2-1, or 1-0 buydown can create meaningful short-term savings, but the key is knowing who pays and how to negotiate it into your deal. Whether funded by a seller, builder, or lender, a buydown can make homeownership more attainable while keeping the seller’s asking price intact.

At CPF Mortgage, we help buyers and homeowners evaluate every financing strategy on the table. Call us today at 727-226-1040 to discuss if a buydown makes sense for your mortgage strategy.