2-1 Buydown

Offset the up-front costs of buying a home, maintain your cash flow and work up to the income that will make your long-term mortgage affordable by decreasing your initial interest rate.

A 2-1 buydown offers flexible financing options that allow you to lower your interest rate for  the first two years of your loan, making homeownership more accessible now.

Let’s Get Your Loan Started

What is a 2-1 Buydown?

You have several options when selecting  the best  loan for your financial situation and goals.  The 2-1 buydown option lets you lower your initial interest rate to make monthly mortgage payments more affordable in the first two years of paying your mortgage. This buydown is available in conjunction with multiple loan types. 

In the first year, you pay an interest rate that is 2% lower than your locked interest  rate. In the second year, you pay an interest rate that is 1% lower. By the third year, you begin paying the total interest rate that was agreed upon when you closed your mortgage.

How is this possible?  An up-front cost is paid at closing to make up for the difference in interest payments for the lender. This cost is known as “discount points”—or simply “points”—and is often paid into an escrow account that will be drawn from to cover the interest costs.

There are options for the seller to pay that up-front cost for you as a concession. This may happen if a seller is struggling to sell their home or wants to sell it quickly. The cost can also be covered by builders as an incentive for home shoppers to purchase their newly constructed homes. Another option would be to cover this cost yourself if you have the extra money up front. 

Let’s look at an example to see how much money a 2-1 buydown can save you:

Say you purchase a home for $315,790 with a 5% down payment. The $15,790 down payment lowers the loan amount to $300,000 with a 5.99% fixed interest rate and a term length of 30 years.

  • If an up-front cost of 3 points is paid using 2-1 buydown, in your first year of monthly mortgage payments, your interest rate would be lowered by 2% for a total of 3.99%. Your monthly payment would be $1,431.
  • In the second year, your interest rate would go up 1% to 4.99%. Your monthly mortgage payment would be $1,609 for the second year.
  • Then finally in the third year, your interest rate would go up to its full amount of 5.99%, and your monthly payment would remain at its fixed amount of $1,797.


In the first year, you save $366 per month for a yearlong savings of over $4,000. In the second year, you save $188 per month for a yearlong savings of over $2,000.

A 2-1 buydown can make it easier to afford the home you love now, rather than waiting until your income increases. It gives you more flexibility with cash flow in the first two years of homeownership.

How to Get a 2-1 Buydown

To learn whether a 2-1 buydown is the best option to help you purchase a home, get in touch with us at Compass Mortgage. To get you started, we’ve outlined the steps and documentation needed to help you understand the process of getting a mortgage.

The Financing Process

Our 2-1 buydown program makes homeownership more easily accessible. As you shop for homes, we’re here to help you determine your financing options.

  • We’ll help you understand if you can finance your home purchase with a long-term mortgage (Conventional, FHA or VA loan).
  • We’ll help you consider the buydown option to lower your initial interest costs.
  • For the 2-1 buydown, you, the seller or the builder (of a new construction) will pay an up-front cost.
  • The up-front cost can be points or a lump sum deposited into an escrow account (for the lender to make up the difference of the lower interest you pay in the first two years of the loan).
  • To get started, you share basic information about your potential home purchase and needs.
  • We’ll work with you to obtain your credit report and discuss your financial situation to find the best loan option.

We’re with you throughout the entire process to help you purchase your home with affordable financing.

2-1 Buydown Requirements

These are some of the common requirements often needed to qualify for a 2-1 buydown. If you have questions about these requirements, we’re here to help.

  • Credit Score. Requirements vary depending on loan type, the home value and other factors. (In many cases, the higher your credit score is, the better your loan terms will be.)
  • Income and Debt-to-Income Ratio (DTI). Documentation will be required since these items are important considerations. (DTI shows how much of your monthly income goes to paying your debt.)
  • Fixed-Rate Loan. A 2-1 buydown is available only with a loan which has a fixed rate of interest.
  • Beyond the Up-Front Costs. You may also need to pay for . . . 
    • Down Payment
    • Closing Costs
    • Mortgage Insurance (depending on the specifics of your loan)

Let’s Get Your Loan Started

2-1 Buydown Benefits
  • Affordable home ownership
  • Lower up-front monthly payments
  • Seller or builder may cover up-front fee
  • Save on mortgage costs in first two years
  • Offset initial expenses of buying a home
  • Increase income over time to cover full interest
  • Afford a larger mortgage sooner

2-1 Buydown FAQs

Purchasing a home is an important investment. It’s good  to have questions about how to finance it. We’ve compiled answers to the frequently asked ones, but don’t hesitate to contact us to ask more.

A 2-1 buydown applies to most purchase loans, including conventional, FHA and VA loan programs. It does not apply, however, to refinance loans.

To apply a 2-1 buydown to your loan, your mortgage also needs to have a fixed interest rate. A buydown cannot apply to adjustable rate mortgages (ARM).

A 2-1 buydown can be beneficial for both the homebuyer and the seller or builder.

Homebuyers can work their way up to affording their full monthly mortgage payment, allowing for flexibility with cash flow and offsetting the initial costs of buying a home. If you want to afford a home with a larger loan that you know you will be able to afford long-term, this makes it possible.

Sellers may also want to offer a 2-1 buydown as a concession to homebuyers because it can incentivize buyers and allow the home to sell more quickly without lowering the listing price. Builders may also offer a buydown to ensure that the newly constructed homes in which they’ve invested are purchased and occupied.

There are a few risks to be aware of with a 2-1 buydown. First, it involves an up-front cost to cover the interest you won’t be paying monthly in the first two years. If this cost can be covered by the seller or builder, this won’t be an issue for you.

This up-front cost is paid into an escrow account. If for some reason there are issues with that account and payment is not made to the lender, it’s your responsibility to cover those costs.

You also want to make sure that when your interest rate reaches its full amount, you will have enough income in the third year to continue to afford your mortgage with its full monthly payment amount.

There are several loan options that can make buying a home as affordable as possible to meet your needs and financial situation. Each loan type offers its own benefits such as lower down payment amounts and flexible qualification requirements.

You may also qualify for down payment assistance, no down payment or be eligible to use a gift down payment.

When it comes to lowering your interest rate, there are also other buydown options that impact how many percentage points your interest rate is lowered and for how long, all of which come with their own up-front costs.

Our mortgage professionals at Compass Mortgage can help you understand all of your options and resources for making your home purchase affordable.

Depending on your purchase loan, you may need to account for other expenses, both up-front costs as well as those included in your ongoing monthly payment. These will be clearly outlined as your loan is processed and before you close.

Beyond the initial 2-1 buydown cost, you may also need to make a down payment, which can be anywhere from 3-20% of the home price.

You’ll also need to pay closing costs, which cover expenses such as loan origination fees, an appraisal, up-front mortgage insurance and title insurance. Closing costs typically range from 1-3% of your total loan amount.

Certain purchase loans offer options to help you afford these costs, including FHA and VA loans.

No matter your circumstances, we’ll gladly help you explore options that could help you purchase a home. Contact us at Compass Mortgage today!