How Homebuyers Are Using 2-1 Buydowns to Make Early Payments More Affordable

A 2-1 buydown can be a useful option for buyers who want lower mortgage payments in the first years of homeownership—especially in today’s higher-rate market. Whether you’re buying a house in Austin, TX or searching for a home in Denver, CO, this temporary rate-reduction option can make the early years of a mortgage more affordable.

This Redfin article breaks how a 2-1 buydown works, who qualifies, what it costs,, pros and cons, and how it compares to alternatives like permanent buydowns, ARMs, and seller concessions.

What is a 2-1 buydown?

A 2-1 buydown is a temporary mortgage arrangement where your interest rate is reduced for the first two years of your loan:

• Year 1: Rate is 2 percentage points lower
• Year 2: Rate is 1 percentage point lower
• Year 3+: Rate returns to the full note rate for the remainder of the loan

The seller, builder, lender, or buyer pays an upfront fee to “buy down” the interest rate for those first two years, creating lower monthly mortgage payments at the beginning of the loan.

Key takeaway: A 2-1 buydown does not permanently reduce your interest rate. Most buyers use it to ease into monthly payments or bridge the gap until refinancing becomes an option, but future rate drops are not guaranteed.

How a 2-1 buydown works (with example)

Let’s say you’re buying a home with:

• Loan amount: $400,000
• Note rate: 6.5%
• Loan type: 30-year fixed

With a 2-1 buydown, your rate would look like:

• Year 1: 4.5%
• Year 2: 5.5%
• Year 3–30: 6.5%

Payment comparison

Note: These figures reflect principal and interest only. Your full payment (including taxes, insurance, and HOA if applicable) will be higher.

Savings:

• Year 1: Save ~$501/month
• Year 2: Save ~$257/month
• Total temporary savings: ~$9,096

Who pays for the buydown?

Usually one of the following:

• Seller: Common in buyer’s markets or new construction incentives
• Builder: Often used to attract buyers in new developments
• Lender: Sometimes offered as a promotional incentive
• Buyer: You can pay the cost yourself, but this is less common

The cost equals the difference between the discounted and full payments for years 1 and 2, and those funds are deposited upfront into a buydown escrow account and applied monthly to supplement your payment.

Seller concession limits (quick reference)

These percentages represent the maximum amount a seller can contribute toward your closing costs, including a temporary buydown, which means the buydown must fit within these limits if the seller is the one funding it.

• Conventional: Typically 3%–9% depending on down payment
• FHA: Up to 6%
• VA: More flexible—no strict % cap, but concessions must be “reasonable”

2-1 buydown requirements

You must still qualify for the full note rate, even though your first two years of payments are lower.

Typical requirements include:

• Must meet lender’s credit score and DTI guidelines based on the full payment
• Applies to most conventional, FHA, and VA loans
• Not available for certain investment properties or specialty programs
• Seller-paid buydown must fall within seller concession limits

Pros and cons of a 2-1 buydown

Pros

• Lower payments at the start: Helpful for buyers absorbing new homeownership costs or timing around childcare, renovations, or other expenses.
• Useful in high-rate environments: Temporary relief while waiting for potential refinancing opportunities.
• Attractive seller incentive: Sellers may offer a buydown instead of lowering the list price.
• Predictable payment increases: Unlike ARMs, payment increases are fixed and laid out upfront.

Cons

• Payment shock after year two: Your payment increases to the full note rate in year three, so budgeting for that change is essential.
• Does not permanently reduce your rate: If rates stay high, you’ll still be at the original note rate later.
• Not always the best use of seller concessions: Sometimes putting concessions toward closing costs or price reduction creates more long-term benefit.
• Must qualify at the full payment: The lower introductory rate cannot help you qualify for a larger loan amount.

Is a 2-1 buydown worth it?

A 2-1 buydown can be a strong choice if:

• You expect income to increase in the next 1–3 years
• You want to ease into homeownership costs
• You hope to refinance if rates improve, but understand that lower future rates aren’t guaranteed
• A seller or builder is offering it at no additional cost to you

It may not be the best choice if:

• You expect to stay in the home long-term and want permanent savings
• You are sensitive to payment increases
• You could use concessions more strategically elsewhere

2-1 buydown vs. permanent buydown

Feature	2-1 Buydown	Permanent Buydown
Lowers rate temporarily
Lowers rate permanently
Cost	Lower upfront	Higher upfront
Best for	Short-term relief	Long-term savings
Allows refinancing?

Quick rule of thumb: If you want long-term savings and plan to keep the home for many years, a permanent buydown may be better. If you want short-term affordability, choose a 2-1 buydown.

2-1 buydown vs. 3-2-1 buydown

A 3-2-1 buydown reduces the rate by 3% in year 1, 2% in year 2, and 1% in year 3. Because it lasts longer, it typically costs significantly more and requires larger seller concessions or builder incentives.

Use when:

• Seller/builder is offering large incentives
• You want even more breathing room during your first few years

If you want a full breakdown of the different types of temporary and permanent rate buydowns, check out our guide: What Is a Mortgage Buydown?

2-1 buydown vs. ARM loan

Feature	2-1 Buydown	ARM (5/6, 7/6, etc.)
Initial low rate		Usually lower
Rate after intro period	Fixed full rate	Adjusts based on market
Predictability	High	Medium/Low
Risk level	Low	Higher

An ARM may offer a lower starting payment, but a 2-1 buydown locks in certainty. Once it resets in year three, your rate remains fixed rather than adjusting with the market.

Alternatives to a 2-1 buydown

If you’re not sure a 2-1 buydown is right for you, consider:

• Seller concessions toward closing costs
• Permanent rate buydown
• Adjustable-rate mortgage (ARM)
• Larger down payment
• Shorter loan term (15-year) if affordable
• Shopping lenders for better pricing

How to decide if a 2-1 buydown makes sense

Ask yourself:

• Will my income increase in the next two years?
• Am I comfortable with the full payment in year three?
• Is the seller paying for the buydown (best-case scenario)?
• Do I plan to refinance?
• Does my lender offer this program for my loan type?

If the answers align with your goals, a 2-1 buydown can be a smart, flexible tool to make early homeownership more affordable.

Frequently asked question about a 2-1 buydown

1. Can you refinance during a 2-1 buydown?

Yes. You can refinance at any time, if you refinance early, any unused escrow funds are generally applied to your loan balance, depending on lender terms.

2. Does a 2-1 buydown affect your credit score?

No—it’s simply a payment structure. It doesn’t change credit reporting or loan qualification.

3. Can first-time buyers use a 2-1 buydown?

Yes. Most lenders allow it on conventional, FHA, and VA loans.

The post How Homebuyers Are Using 2-1 Buydowns to Make Early Payments More Affordable appeared first on Redfin | Real Estate Tips for Home Buying, Selling & More.