2-1 buydown explained: cost, who pays and the rules (2026)
A 2-1 buydown lowers your rate 2 points in year one and 1 point in year two. What it costs, who pays, seller-paid limits, and when a permanent buydown is better.
The short answer
A 2-1 buydown is a temporary rate reduction: your payment is figured at 2 percentage points below the note rate in year one and 1 point below in year two, then returns to the full rate for the rest of the loan. On a $400,000, 30-year loan at 7.00%, the payment is $2,147 in year one, $2,398 in year two and $2,661 after that; the buydown costs $9,323, which is usually paid by the seller or builder. Fannie Mae qualifies you at the full note rate (Selling Guide B2-1.4-04).
Key numbers
- Year 1 rate
- Note rate minus 2 points
- Year 2 rate
- Note rate minus 1 point
- Cost
- Sum of the payment savings
- Qualifying rate (Fannie Mae)
- The full note rate
How a 2-1 buydown works
The loan's note rate never changes. Someone (usually the seller or builder) deposits money at closing into an escrow account, and the servicer draws on it each month to cover the difference between the full payment and the reduced one. When the account runs out after year two, you pay the full amount.
| Period | Rate used for the payment | Monthly P&I on $400,000 | Paid from the buydown fund |
|---|---|---|---|
| Year 1 | 5.00% | $2,147 | $514 a month |
| Year 2 | 6.00% | $2,398 | $263 a month |
| Years 3-30 | 7.00% (note rate) | $2,661 | $0 |
| Total cost of the buydown | $9,323 | ||
Principal and interest only, 30-year fixed. Try your own loan in the 2-1 buydown calculator.
Who pays for a 2-1 buydown?
Almost always the seller or a builder, as part of the price negotiation. These are "interested party contributions," and Fannie Mae caps them for primary and second homes at 3% of the price when the loan-to-value ratio is above 90%, 6% at 75.01% to 90%, and 9% at 75% or less (Selling Guide B3-4.1-02). The buydown counts toward that cap together with any other seller-paid closing costs. FHA limits seller concessions to 6% of the sales price (HUD Handbook 4000.1).
The rules to know
- You qualify at the full rate. Fannie Mae underwrites a temporary buydown at the note rate, not the reduced first-year rate, so it doesn't raise the price you can afford.
- Not for investment properties or cash-out refinances. Fannie Mae allows temporary buydowns only on principal residences and second homes, on purchases and limited cash-out refinances (B2-1.4-04).
2-1 buydown vs. a price cut vs. permanent points
With the same seller money you can lower the price, buy a temporary buydown, or buy permanent discount points. A temporary buydown gives the most payment relief in the first two years. A permanent buydown with points lowers the rate for the life of the loan, which usually wins if you plan to keep the loan more than a few years. A price cut lowers the loan amount, property taxes in many states, and the down payment. September 2026 brought a record share of listings with price cuts (our report), so sellers are often open to any of the three.
Frequently asked questions
What is a 2-1 buydown?
A temporary rate reduction that lowers your payment by 2 percentage points in year one and 1 point in year two. After that you pay the full note rate. The cost is prepaid at closing, usually by the seller.
How much does a 2-1 buydown cost?
The sum of the payment savings over the two years. On a $400,000 loan at 7.00%, it costs $9,323 ($514 a month in year one and $263 a month in year two).
Who pays for a 2-1 buydown?
Usually the seller or builder, as a concession. Fannie Mae caps seller contributions at 3%, 6% or 9% of the price depending on the loan-to-value ratio; FHA caps them at 6%.
Do you qualify at the bought-down rate?
No. Fannie Mae qualifies you at the full note rate, so a 2-1 buydown lowers early payments but doesn't increase how much you can borrow.
Is a 2-1 buydown worth it?
It helps if you expect your income to rise or plan to refinance if rates fall. If you'll keep the loan many years, the same money spent on permanent discount points often saves more.
What is a 3-2-1 buydown?
The same idea over three years: 3 points below the note rate in year one, 2 in year two and 1 in year three. It costs roughly twice as much as a 2-1 buydown on the same loan.