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 my specialty areas at Mortgage Austin. I 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.

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Refinance Flexibility

If rates drop during the buydown period, you can refinance into a permanent lower rate. Unused buydown funds from the escrow account may be applied to your principal.

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:

Year2-1 buydown rate1-0 buydown rate
Year 12% below the note rate1% below the note rate
Year 21% below the note rateFull note rate
Year 3 and onFull note rateFull 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. I analyze your specific scenario and show you exactly how the numbers work before you make a decision.

Frequently Asked Questions

How does a 2-1 buydown work?
The seller deposits money at closing that lowers your effective rate by 2% in year one and 1% in year two. Starting in year three, you pay the full note rate for the rest of the loan. Your loan and rate never change; the buydown funds simply cover part of the payment early on.
How much does a 2-1 buydown cost the seller?
The cost equals the exact payment difference over the first two years, which typically works out to roughly 2% to 3% of the loan amount. On a $400,000 loan it often lands in the $8,000 to $12,000 range depending on the rate. I calculate the precise figure before you negotiate.
Is a seller-paid buydown better than a price reduction?
A buydown usually lowers your monthly payment more per seller dollar than the same amount taken off the price. A price cut, on the other hand, permanently lowers your loan balance and property taxes. Which wins depends on how long you plan to keep the home and the loan, and I can run both scenarios side by side.
Do I have to qualify at the full note rate with a buydown?
Yes. Lenders qualify you at the permanent note rate, not the temporarily reduced payment. That protects you from payment shock in year three, since your approval already proves you can handle the full payment.
What happens to the buydown money if I refinance early?
The unused funds do not disappear. If you refinance or sell during the buydown period, the remaining balance in the buydown account is typically applied against your loan payoff.

Ready to Explore Buydown Options?

No pressure, no obligation. Let me walk you through your options and find the right fit for your situation.

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