2-1 Buydown Loans: What You Need To Know

Navigating the home buying process can be difficult and somewhat intimidating, so we have provided the information below to answer some of the most common questions about doing a 2-1 Buydown.

2-1 buydown

What is a 2-1 Buydown Loan?

A 2-1 buydown is a strategy that allows home buyers to temporarily lower their interest rate on their mortgage loan. It can help reduce their monthly mortgage payments during the first two years of the loan by temporarily lowering the interest rate. This strategy "buys down" the interest rate of the loan by putting some cash towards purchasing points off the interest rate, providing a discounted interest rate during the first two years of repayment.

Once the introductory period expires, the interest rate will gradually increase until it reaches the regular market rate. This is done in a series of increments, usually by increments of 1% until the market rate is reached. The mortgagor is then obligated to repay the loan at the increased rate. This strategy is often used in negotiations where the home has been sitting for an extended period. This gives the buyer an opportunity to ask for the seller to pay for the buydown instead of lowering the purchase price significantly as their is often a greater benefit to the buyer to have a lower interest rate for a short term. Here is an example:

🏡 Two Ways to Negotiate Seller Concessions

Purchase Price: $650,000 | 20% Down Payment | Loan Amount: $520,000 | Interest Rate: 6.5%

🔹 Option 1: Seller Contributes $12,000 Toward a 2-1 Buydown

  • Year 1 Payment (4.5%): $2,635/month

  • Year 2 Payment (5.5%): $2,953/month

  • Year 3+ Payment (6.5%): $3,287/month

  • Total Savings Over First 2 Years: $11,835

  • Biggest Impact: Dramatically lower payments in the early years = increased monthly cash flow when it matters most

🔹 Option 2: Seller Reduces Price by $15,000

  • New Purchase Price: $635,000

  • New Loan Amount: $508,000

  • Monthly Payment (30 years @ 6.5%): $3,211/month

  • Monthly Savings Compared to Original Loan: $76

  • Total Savings Over First 2 Years: $1,820

📊 The Bottom Line:

💡 A 2-1 buydown offers over 6x the first 2 years' savings compared to a $15K price reduction— with less seller concession required. For buyers focused on monthly affordability, the buydown creates more breathing room and financial flexibility.

Who is eligible for a 2-1 Buydown?

Any client who qualifies for a home loan can apply for a 2-1 Buydown. This strategy is particularly beneficial for those who expect to have more income by the time the rate increases, plan to rent the home out after the primary residence requirement period is over, or plans to refinance into a lower rate.

What are the benefits of a 2-1 Buydown?

The primary benefit of a 2-1 Buydown is the lower monthly payment during the first two years. This loan program gives borrowers an opportunity to settle into homeownership and establish financial stability without facing the initial burden of a high monthly mortgage payment. A reduced monthly mortgage payment frees up cash flow each month, making it an excellent option for individuals who desire to save money or put the difference they would have paid in interest into their principal payment instead.

Another benefit of a 2-1 Buydown is the ability to qualify for a more substantial loan. By reducing the interest rate, borrowers can obtain a larger loan amount than they might have otherwise qualified for. Another benefit is since the initial two years of lower payments allow the borrower to build a stronger credit score, the individual is in a better position to qualify for refinancing or to adjust the loan after the initial two-year period. Furthermore, this strategy is an excellent negotiation tactic for both buyer and seller to reach an agreement since the seller doesn't have to reduce the purchase price as much as they might have thought for the buyer to get the monthly mortgage payment they were after.

What are the requirements for obtaining a 2-1 Buydown?

To obtain a 2-1 Buydown, you must meet the standard requirements for a mortgage loan. You must also have a stable employment history and sufficient income to make the monthly mortgage repayments.

Another requirement is that you must have a credit score of at least 620. While this loan program may be beneficial for people with lower credit scores, a higher score will provide significant benefits and savings. A higher score will ensure that you receive a competitive rate during the first two years of the loan.

A 2-1 Buydown also usually requires the same level of documentation that standard loans require. You'll need to provide proof of income, tax returns, and other financial documents.

Contact Freestone Mortgage by answering the questions below to assess whether a 2-1 Buydown is the right fit for your financial situation.

The sample rates provided are for illustration purposes only and are not intended to provide mortgage or other financial advice specific to the circumstances of any individual and should not be relied upon in that regard. Freestone Mortgage LLC cannot predict where rates will be in the future. The payment example does not include assessments. Actual payment obligations may be greater and may vary. Mortgage Insurance Premium (MIP) is required for all FHA loans, and Private Mortgage Insurance (PMI) is required for all conventional loans where the LTV is greater than 80%. Rate(s), APR(s) and payment info is valid as of 9/15/2025 and assumes a first lien position, 740 FICO score, 30-day rate lock, based on a single-family home. Loans are subject to underwriting guidelines and the applicant’s credit profiles, not all applicants will receive approval. Available for conventional, FHA, VA, and USDA loans only. All loans subject to underwriting approval. Certain restrictions apply. Call for details.