How Does a 2-1 Buydown Work?
Last updated November 2026
A 2-1 buydown lowers your interest rate by 2% in year one and 1% in year two. From year three on, you pay the full note rate. The seller, builder, or lender usually pays for it with a credit at closing.
Your note rate does not change. The credit goes into an account at closing, and that account covers the gap between your lower payment and the full payment for 24 months. At Forward Loans, a Phoenix mortgage broker (NMLS #2006640), we run the same seller credit with no buydown, a 1-0 buydown, and a 2-1 buydown in our seller concessions tool so you can see all three side by side before you ask. This page is part of our Arizona first-time homebuyer guide.
On this page
- What happens in each year of a 2-1 buydown?
- Who pays for a 2-1 buydown?
- Do you qualify at the lower rate?
- What happens if you refinance or sell in the first two years?
- Is a 2-1 buydown better than a lower permanent rate?
- Which loans and homes allow a 2-1 buydown?
- How do you ask for one in your offer?
- Frequently asked questions
What happens in each year of a 2-1 buydown?
You pay a lower rate for two years, then the full rate. The account set up at closing makes up the difference each month.
| Year | Rate you pay | Who covers the difference |
|---|---|---|
| Year 1 (months 1 to 12) | Note rate minus 2% | The buydown account |
| Year 2 (months 13 to 24) | Note rate minus 1% | The buydown account |
| Year 3 to payoff | Full note rate | No one. This is your full payment. |
Your loan documents show the full note rate and the full payment. A separate buydown agreement covers the first two years. A 1-0 buydown works the same way with one year at 1% lower.
Who pays for a 2-1 buydown?
Usually the seller or the builder. Sometimes the lender pays for it with a lender credit.
When the seller pays, it counts as a seller concession. Every loan type caps how much the seller can give you, and the buydown comes out of that same cap. Our seller concessions tool lists the caps by loan type. Some programs let you pay for the buydown yourself. That is your own money prepaying your own interest. The same dollars could also go toward a lower note rate.
Do you qualify at the lower rate?
No. Fannie Mae requires the lender to qualify you at the full note rate, not the bought-down rate (Selling Guide B2-1.4-04, updated August 7, 2024). Many lenders apply the same rule to FHA and VA loans, so ask yours.
So a 2-1 buydown lowers your first two years of payments. It does not raise the price you qualify for. If your debt-to-income ratio only works at the year one payment, the file will not work. Here is how lenders look at your income.
What happens if you refinance or sell in the first two years?
Money left in the buydown account is usually applied to your loan balance. It does not go back to the seller. Your buydown agreement says exactly how it’s handled, so read that page before closing.
This is why some buyers like a 2-1 buydown. If you refinance in year one, the unused credit still lowers what you owe.
Is a 2-1 buydown better than a lower permanent rate?
It depends on how long you keep the loan. The same seller credit can pay for a temporary buydown or for a lower note rate for the life of the loan.
| 2-1 buydown | Lower permanent rate | |
|---|---|---|
| When you save | First 24 months | Every month you keep the loan |
| Payment in year 3 | Full note rate | Stays lower |
| Helps you qualify | No | Yes, a little, because the note rate is lower |
| If you refinance early | Unused credit usually goes to your balance | The lower rate goes away with the old loan |
A 2-1 buydown fits a buyer who expects their income to grow over the next two years. It fits less well if you plan to keep the loan a long time. Nobody can promise rates will drop, so a plan that only works with a refinance carries that risk.
Which loans and homes allow a 2-1 buydown?
Most fixed-rate purchase loans on a home you will live in. Fannie Mae allows temporary buydowns on primary homes and second homes, not investment properties. FHA and VA loans can use them too, under each program’s rules. Each lender and investor can add its own rules, so ask before the buydown goes into your offer.
How do you ask for one in your offer?
Have your agent write the seller credit so it can pay for a buydown, not only closing costs. Then tell your loan officer early so the buydown agreement is in the file well before closing.
- Run the numbers first. Put the credit into the seller concessions tool and compare no buydown, 1-0, and 2-1.
- Check the cap. Make sure the credit fits under your loan type’s seller concession limit.
- Write it into the offer. Your agent words the credit so it can be used for a buydown.
- Tell your loan officer. The buydown agreement has to be signed and funded at closing.
Frequently asked questions
Does a 2-1 buydown change the interest rate on my note?
No. Your note shows the full rate for the life of the loan. The buydown account pays part of your interest for the first 24 months.
Who pays for a 2-1 buydown in Arizona?
Usually the seller or builder, through a seller credit at closing. A lender credit can also pay for it. Seller-paid buydowns count toward your loan type’s seller concession cap.
Do I qualify at the bought-down rate?
No. Fannie Mae requires lenders to qualify you at the full note rate. Many lenders apply the same rule to FHA and VA loans.
What happens to the buydown money if I refinance or sell early?
Money left in the buydown account is usually applied to your loan balance. Your buydown agreement spells out how it’s handled.
Can I use a 2-1 buydown on an investment property?
Not on a Fannie Mae conventional loan. Fannie Mae allows temporary buydowns on primary homes and second homes only.
Is a 2-1 buydown the same as buying points?
No. Points lower your note rate for the life of the loan. A 2-1 buydown lowers what you pay for the first two years, then the full note rate applies.
About this guide. Written by Michael Creel, Founder, Forward Loans. NMLS #420674. Last updated November 2026. This page is general information, not an offer to lend or a commitment to lend. Buydown availability depends on the loan program, the property, the investor, and full underwriting.
Forward Loans (Forward Holdings, LLC), NMLS #2006640 | 11201 N Tatum Blvd, Ste 300, Phoenix, AZ 85028 | Licensed in AZ, CA, CO, TX, FL, WA, OR, AL | Equal Housing Lender | nmlsconsumeraccess.org