A temporary buydown lowers the borrower's payment for the first year or two. The difference between the full payment and the reduced payment is deposited into an escrow account at closing — usually funded by the seller as a concession.
How the common structures work
| Buydown | Year 1 | Year 2 | Year 3+ |
|---|---|---|---|
| 3-2-1 | Note − 3% | Note − 2% | Note − 1% in year 3, then note rate |
| 2-1 | Note − 2% | Note − 1% | Note rate |
| 1-1 | Note − 1% | Note − 1% | Note rate |
| 1-0 | Note − 1% | Note rate | Note rate |
On a $400,000 loan at 7.00%, a 2-1 buydown costs roughly $7,000–$9,000 — the sum of 24 months of payment differences.
What borrowers should know
- You qualify at the full note rate, not the reduced rate.
- The payment steps up on schedule, so budget for year 3 from day one.
- If you refinance or sell early, remaining buydown funds are typically credited toward your payoff — check the buydown agreement.
Seller credit: buydown, permanent buydown, or price cut?
The same seller dollars can be used three ways:
- Temporary buydown — biggest payment relief in years 1–2.
- Permanent buydown (discount points) — smaller relief, but for the life of the loan.
- Price reduction — lowers loan amount, down payment and property-tax basis.
Which is best depends on how long the buyer will keep the loan and whether rates are likely to fall (making a refinance likely). Our Buydowns & Seller Credits calculator compares all three and checks the program's interested-party contribution limit (3–9% conventional, 6% FHA, 4% VA).