What is a 2-1 Buydown

December 10, 2022 | Market News, New Home Tips, What is a 2-1 Buydown

When it comes to buying a home, it’s important to do your research on mortgage options. We work with a number of lending partners to ensure you get your ideal home with an affordable mortgage. If you work with one of our preferred partners, we offer discounts and incentives that can help, such as a 2-1 buydown.

There are a number of mortgage options out there and it’s important to find the right one for your situation and finances. One that has grown in popularity as interest rates have gone up is the 2-1 temporary rate buydown. This is a good option for when rates may be high now but you expect them to drop in the coming years, which is what many are forecasting for interest rates in the coming future.

With the 2-1 rate buydown, there is a low interest rate for the first year of the loan, followed by a small increase in the second year of the loan, and then from the third year on, there is the full interest rate you’ve locked in, typically with 30-year mortgages. For example, the interest rate would be 2% below the note rate the first year, followed by 1% below the note rate the second year, and from there it would be the standard note rate. You do need to qualify for the mortgage at the standard note rate, not the reduced rate, but you can try to refinance if the interest rates drop enough and you have the money saved to afford refinancing.

Obviously, one of the perks of this mortgage option is the ability to save on your mortgage payments. You can either save the money to put toward a possible refinancing, or you could always use it to furnish your new home, or put it towards other goals, financial or otherwise.

Also, if you’re expecting your income to increase in the next two years, this will also give you some extra breathing room on your mortgage payments so that when you do start paying the full interest rate, you’ll have more money available.

Another benefit of having the buydown as part of a seller incentive, like our option, is that the buydown becomes part of the closing costs the seller pays to help the buyer reduce closing costs.

To learn more about the 2-1 buydown, talk to our preferred lenders. It may be just the incentive you need to help you get into a brand new home in the coming year. You can also contact our New Home Sales Specialists for more information about our homes and our incentive programs. We look forward to working with you!