2-1 buydown calculator: payments and total cost
See your payment in years 1, 2 and 3 of a 2-1 buydown, what the buydown costs, and Fannie Mae's seller-paid limit for your down payment.
The short answer
A 2-1 buydown lowers your rate 2 points in year 1 and 1 point in year 2, then the full rate applies. On a $400,000, 30-year loan at 7.00%, payments are about $2,147 in year 1, $2,398 in year 2 and $2,661 after that. The buydown costs the total of those savings, about $9,323, and is often paid by the seller. Fannie Mae qualifies you at the full 7.00% rate (Selling Guide B2-1.4-04).
How a 2-1 buydown works
Someone, usually the seller or builder, pays money upfront into an account that subsidizes your monthly payment for the first two years. Your note rate never changes; the subsidy covers the difference. Cost = (full payment − year 1 payment) × 12 + (full payment − year 2 payment) × 12.
Worked example: $400,000 at 7.00%
| Year | Rate you pay | Principal + interest | Monthly savings |
|---|---|---|---|
| 1 | 5.00% | $2,147 | $514 |
| 2 | 6.00% | $2,398 | $263 |
| 3 to 30 | 7.00% | $2,661 | $0 |
| Total buydown cost | $9,323 | ||
Fannie Mae rules for temporary buydowns
- Eligible: primary homes and second homes. Not investment properties or cash-out refinances.
- Limits: up to a 3-point reduction for up to 3 years, and your rate can rise by no more than 1 point a year.
- Qualifying: you're approved at the note rate, not the bought-down rate.
- Funds: held in a custodial account; if the loan is paid off early, unused funds are credited to the payoff or returned as the buydown agreement says.
Source: Fannie Mae Selling Guide B2-1.4-04.
How much can the seller pay?
A seller-funded buydown counts as an interested party contribution. Fannie Mae's limits, based on the lower of price or appraised value (Selling Guide B3-4.1-02):
| Occupancy | Loan-to-value | Maximum seller contribution |
|---|---|---|
| Primary or second home | Over 90% | 3% |
| Primary or second home | 75.01% to 90% | 6% |
| Primary or second home | 75% or less | 9% |
| Investment property | All | 2% |
A buydown vs. a permanent rate cut: mortgage points explained. Why builders and sellers offer them: record price cuts and buydowns.
Frequently asked questions
How much does a 2-1 buydown cost?
The sum of the payment savings: on a $400,000 loan at 7.00%, about $514 a month in year 1 and $263 in year 2, or about $9,323 in total.
Who pays for a 2-1 buydown?
Usually the seller or builder, as a concession. The buyer or lender can also fund it. Seller-paid buydowns count toward Fannie Mae's 3%, 6% or 9% interested party contribution limits.
Do you qualify at the bought-down rate?
Not with Fannie Mae. You qualify at the full note rate, so the buydown doesn't increase how much you can borrow.
What happens to a buydown if I refinance or sell?
Under Fannie Mae's rules, unused buydown funds are credited toward the payoff or returned to the borrower or lender as the buydown agreement specifies.
Is a 2-1 buydown better than paying points?
A buydown helps only the first two years; points lower the rate for the life of the loan. If you expect rates to fall and plan to refinance, a temporary buydown can cost less.