Homebuying · 5 min read
What Is a 2-1 Buydown? (California 2026)
A 2-1 buydown temporarily reduces your mortgage rate by 2 percentage points in the first year and 1 point in the second year, then it returns to the full note rate for the remaining term. The cost — the difference between the reduced and full payments — is paid upfront, usually by the seller or builder, into an escrow account. It's a way to ease into payments or win a deal when sellers offer concessions.
QUICK ANSWER
A 2-1 buydown temporarily lowers your mortgage rate by 2 percentage points in year one and 1 point in year two. The cost of those savings is paid upfront at closing, usually by the seller or builder. From year three on, you pay the full note rate for the life of the loan. You must still qualify at the full rate.
How does a 2-1 buydown work?
If your permanent rate is 7%, a 2-1 buydown means you pay as if the rate were 5% in year one and 6% in year two, then 7% from year three on. The savings are pre-funded into an escrow account at closing and released each month to cover the gap. Model the payments with our mortgage calculator.
Who pays for a 2-1 buydown?
Usually the seller or builder as a concession — a common tactic in a slower market to make a home more attractive without cutting the price. Buyers can also pay for it themselves. Either way, the full cost is deposited upfront. This differs from permanent discount points, which lower the rate for the entire loan.
2-1 buydown vs. permanent points
| 2-1 Buydown | Discount Points | |
|---|---|---|
| Rate reduction | Temporary (2 years) | Permanent |
| Best when | Rates expected to fall; seller pays | You'll keep the loan long-term |
| Who usually pays | Seller/builder | Buyer |
When does a 2-1 buydown make sense?
It shines when a seller is offering concessions, when you expect to refinance within a couple of years if rates drop, or when you want lower initial payments while your income ramps. If rates don't fall and you keep the loan, you'll face the full payment in year three — so qualify at the full rate. Compare with a conventional loan at par.
What a 2-1 buydown costs: a worked example
Take a $600,000 loan with an example note rate of 7.00%. This is for illustration, not a quote. Rates change daily.
| Period | Monthly P&I | Monthly savings | Yearly savings |
|---|---|---|---|
| Year 1 (5.00%) | $3,221 | $771 | $9,251 |
| Year 2 (6.00%) | $3,597 | $395 | $4,734 |
| Years 3–30 (7.00%) | $3,992 | $0 | $0 |
| Total buydown cost | About $13,985 |
That cost is about 2.3% of the loan, and it gets deposited at closing. Try different numbers in our buydown calculator.
Seller credit limits that cap a buydown
When the seller pays for the buydown, it counts as a seller concession, and every loan type has a cap:
| Loan | Typical seller-concession limit |
|---|---|
| FHA | Up to 6% of the price |
| Conventional, less than 10% down | Up to 3% |
| Conventional, 10% to 25% down | Up to 6% |
| Conventional, more than 25% down | Up to 9% |
| Conventional, investment property | Up to 2% |
The buydown and any closing-cost credits share the same cap. On a $632,000 purchase with 5% down (about a $600,000 loan), the 3% conventional cap is $18,960. A $13,985 buydown leaves about $4,975 for other costs. Read more in our seller concessions guide.
Other buydown options
A 1-0 buydown lowers the rate by 1% for the first year only and costs less. A 3-2-1 buydown starts 3% lower and steps up over three years, but costs more and not every lender offers it. In each case you still qualify at the full note rate. If you refinance early, unused buydown funds generally go toward your payoff, so a buydown pairs well with a plan to refinance if rates fall. Rates change daily, so for an accurate quote call 949-379-5320 (Newport Beach) or 310-759-4757 (Marina del Rey).
Frequently asked questions
What is the difference between a 2-1 buydown and buying points?
A 2-1 buydown lowers your rate temporarily — 2% in year one, 1% in year two — then returns to the full rate. Discount points lower your rate permanently for the life of the loan. Buydowns are often seller-paid; points are usually buyer-paid.
Do I qualify based on the reduced rate or the full rate?
You qualify at the full (note) rate, not the temporary reduced rate. Lenders underwrite to the permanent payment to ensure you can afford it once the buydown period ends in year three.
What happens if I refinance during the buydown period?
If you refinance or sell before the buydown funds are used up, the remaining balance in the escrow account is typically applied to your loan payoff — so you don't lose the unused portion.
Can I use a 2-1 buydown on an FHA or VA loan?
Generally yes. FHA and VA allow temporary buydowns on fixed-rate purchase loans, subject to lender rules, and you still qualify at the full note rate.
Is a 2-1 buydown available on a refinance?
It is mostly a purchase tool, because a seller or builder usually pays for it. On a refinance, availability is limited and depends on the lender and loan type.
About this guide: Save Financial is a California-licensed mortgage broker (NMLS #377740, DRE #01875766) serving all 58 counties. Get a custom quote or call 949-379-5320.