We are currently accepting applications for the US Small Business Administration (SBA) Paycheck Protection Program (PPP). Learn more.

Mortgage Buydown

Buydown Options

A buydown is a type of financing where the buyer or seller pays extra points (also called discount points) to reduce the interest rate on a loan. Buydowns make it easier to qualify for a loan because they lower a loan's interest rate. They can also allow you to buy more house for your money.

There are generally two types of buydowns: a permanent buydown and a temporary buydown. 

Permanent Buydown

A permanent buydown can be paid by the seller or the builder as an incentive to finalize a sale by creating lower monthly payments. Sellers can also benefit from assisting with a buydown with a difficult-to-sell-property or during slower market conditions. It increases the buyer’s ability to qualify for a loan, therefore, allowing the home to be sold quicker. Plus, a buydown offer is usually less than a price reduction on the home.

Temporary Buydown

In a temporary buydown, you prepay interest in exchange for a lower rate during the early years of a loan. The most common temporary buydown is called 3-2-1,meaning the mortgage payment in years one, two and three is calculated at rates 3 percent, 2 percent and 1 percent, respectively, below the rate on the loan. On a 2-1 buydown, the payment in years one and two is calculated at rates 2 percent and 1 percent below the loan rate. And on a 1-0 buydown, the payment in year one is calculated at 1 percent below the loan rate.

A temporary buydown can be a benefit to a buyer whose current income is low but anticipates that it will increase during the next two years. First-time homebuyers who need to purchase all of the furnishings that go into a new home may also find a temporary buydown appealing.

Blog and News
We use cookies to improve your online experience. If you continue on our site, you agree to our cookie policy. Learn more about how we use cookies by reviewing our privacy policy. I agree