Seller-Paid Buydown
Use seller concessions to lower your interest rate in the early years of your mortgage. A temporary buydown can reduce your monthly payment significantly when it matters most.
What Is a Seller-Paid Buydown?
A temporary buydown is a financing strategy where the seller contributes funds at closing to reduce your interest rate for the first one or two years of the loan. The most common structures are the 2-1 buydown and the 1-0 buydown.
In a 2-1 buydown, your rate is reduced by 2% in the first year and 1% in the second year before settling at the permanent rate in year three. A 1-0 buydown reduces the rate by 1% in the first year only. The seller pays the difference upfront through concessions at closing.
This is one of our specialty areas at Mortgage Austin. We help buyers negotiate buydown structures that make the most sense for their budget and timeline, turning seller concessions into real monthly savings.
Key facts:
- 2-1 buydown: rate is 2% lower in year one, 1% lower in year two, full note rate from year three
- 1-0 buydown: rate is 1% lower in year one only
- You must qualify at the full note rate, not the reduced rate
- The seller funds the buydown through concessions at closing
- If you refinance early, unused buydown funds may be applied to your principal
How Buydowns Help You
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Lower Early Payments
A 2-1 buydown can significantly reduce your payment in years one and two, giving you breathing room when you need it most after purchasing a home.
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Seller-Funded
The cost of the buydown comes from seller concessions at closing, not your pocket. It is a negotiation tool that benefits the buyer directly.
How Does a 2-1 Buydown Work?
In a 2-1 buydown, your interest rate is reduced by 2% in year one and 1% in year two, then the loan carries the full note rate from year three on. A 1-0 buydown lowers the rate by 1% in the first year only. You qualify at the full note rate, and the seller funds the cost through concessions at closing. Here is what you need to know:
| Year | 2-1 buydown rate | 1-0 buydown rate |
|---|---|---|
| Year 1 | 2% below the note rate | 1% below the note rate |
| Year 2 | 1% below the note rate | Full note rate |
| Year 3 and on | Full note rate | Full note rate |
✓ 2-1 Buydown: Year 1 rate is 2% below the note rate, Year 2 is 1% below, Year 3+ is the full note rate.
✓ 1-0 Buydown: Year 1 rate is 1% below the note rate, Year 2+ is the full note rate.
✓ Qualification: You must qualify at the full note rate, not the reduced rate. This ensures you can afford the payment when it adjusts.
✓ Seller concessions: The seller funds the buydown through concessions at closing. The amount depends on the loan amount and rate difference.
✓ Best for: Buyers who expect income growth, anticipate refinancing if rates decline, or want lower initial payments in a competitive market.
Buydowns are a powerful tool when used correctly. We analyze your specific scenario and show you exactly how the numbers work before you make a decision.
Ready to Explore Buydown Options?
No pressure, no obligation. Let us walk you through your options and find the right fit for your situation.