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TEMPORARY MORTGAGE RATE BUYDOWNS
Reduce the borrower's initial mortgage payments during the first one to three years of an eligible home loan.
How Buydowns Work
A temporary buydown involves funds contributed at closing to subsidize part of the borrower's scheduled principal-and-interest payment. The mortgage keeps its full note rate, and payments increase gradually until reaching the regular amount. Borrowers must qualify using the full note-rate payment, not the reduced introductory rate.
Common Structures
- 3-2-1 Buydown: Rate reduction of 3 percentage points (year one), 2 points (year two), 1 point (year three), then full rate thereafter.
- 2-1 Buydown: Rate reduction of 2 percentage points (year one), 1 point (year two), then full rate beginning year three.
- 1-0 Buydown: Rate reduction of 1 percentage point (year one), then full rate beginning year two.
Funding Sources
- Home Seller
- Home Builder
- Lender
- Other Permitted Sources (case-by-case)
When Buydowns Help
- Reducing early payments for moving and furnishing costs
- Using seller incentives effectively
- Making new-construction purchases more appealing
- Planning for future income increases
Important Considerations
- Borrowers must be prepared for full payments after subsidy ends
- This is temporary, not a permanent rate reduction
- Program availability varies by loan type and lender
- Funds must be established at closing
- Refinancing cannot be guaranteed
- Unused funds are governed by agreement terms
Closing
SCHEDULE A MORTGAGE STRATEGY REVIEW and compare introductory payments, full payments, contributions, rates, cash needed, and long-term costs.
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Frequently Asked Questions
No; the note rate remains fixed while deposited funds subsidize initial payments.
Generally no; qualification is based on the full note-rate payment.
No; the note rate stays constant; only subsidy amounts decrease yearly.
Seller, builder, lender, or other permitted sources depending on program rules.
Program-dependent; must be reviewed before assuming buyer funding is permitted.
May be available on eligible loans through these programs, subject to specific lender and program requirements.
Availability is limited; standard eligibility typically covers principal residences and second homes.
No; choice depends on available contributions, borrower plans, and complete loan comparison.
Not always; both should be calculated for proper comparison.
Borrower pays the complete principal-and-interest payment plus taxes, insurance, and other housing expenses.
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