In recent years a temporary buydown has become increasingly more popular given our current

mortgage-interest rate environment. A temporary buydown is a mortgage technique that lowers

the interest rate on a loan for a limited period at the beginning of the loan term. It helps reduce

the borrowers’ payments, making the loan more affordable at the start in hopes that better

market conditions are on the horizon and a refinance is right around the corner.

How It Works:

The most common type of temporary buydown is a seller-funded buydown. To do this, a buyer

must be successful in negotiating seller concessions upon making their offer. If successful, the

borrower may then decide to utilize a portion/ or all those funds received to take part in one of

the temporary buy-downs below.

Common Types of Buydowns:

3-2-1 Buydown:

Year 1: Rate is 3% below the note rate

Year 2: Rate is 2% below the note rate

Year 3: Rate is 1% below the note rate

Year 4+: Full note rate applies

(Example, Loan amount of $500,000. Qualifying note rate of 6.5%. – You would need

$22,361.10 in the form of a seller concession to take part in a 3-2-1 buydown.

Year 1: Payment 3.5% -Principle/ Interest- $2,245.22

Year 2: Payment 4.5% -Principle/ Interest- $2,533.43

Year 3: Payment 5.5% -Principle/ Interest- $2,838.95

Year 4+: Payment 6.5% -Principle/ Interest- $3,160.34

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2-1 Buydown:

Year 1: Rate is 2% below the note rate

Year 2: Rate is 1% below the note rate

Year 3+: Full note rate applies

(Example, Loan amount of $500,000. Qualifying note rate of 6.5%. – You would need

$11,379.70 in the form of a seller concession to take part in a 2-1 buydown.

Year 1: Payment 4.5% -Principle/ Interest- $2,533.43

Year 2: Payment 5.5% -Principle/ Interest- $2,838.95

Year 3+: Payment 6.5% -Principle/ Interest- $3,160.34

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1-1 Buydown:

Year 1: Rate is 1% below the note rate

Year 2: Rate is 1% below the note rate

Year 3+: Full note rate applies

(Example, Loan amount of $500,000. Qualifying note rate of 6.5%. – You would need $7,713.48

in the form of a seller concession to take part in a 1-1 buydown.

Year 1: Payment 5.5% -Principle/ Interest- $2,838.95

Year 2: Payment 5.5% -Principle/ Interest- $2,838.95

Year 3+: Payment 6.5% -Principle/ Interest- $3,160.34

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1-0 Buydown:

Year 1: Rate is 1% below the note rate

Year 2+: Full note rate applies

(Example, Loan amount of $500,000. Qualifying note rate of 6.5%. – You would need $3,856.74

in the form of a seller concession to take part in a 1-0 buydown.

Year 1: Payment 5.5% -Principle/ Interest- $2,838.95

Year 2+: Payment 6.5% -Principle/ Interest- $3,160.34

Jesse Young- Neighborhood Loans - 817-939-1467direct