Strategy

1-0, 2-1 & 3-2-1 buydowns, explained

How temporary buydowns work, who can pay for them, and when a 1-0, 2-1, or 3-2-1 buydown can make more sense than permanent points—for both buyers and agents writing offers.

For homebuyers & their agents 1-0, 2-1 & 3-2-1 buydowns in plain English Compare buydowns, points & no buydown

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Payments at a glance

~6 min read

Temporary buydowns, in real-world terms

A temporary buydown is a way to front-load a lower payment for the first 1–3 years, funded by a lump-sum credit at closing. The note rate stays the same—only the effective payment is reduced.

① Understand how 1-0, 2-1 & 3-2-1 buydowns change your early payments.
② Learn who can pay for them—seller, builder, or lender.
③ See when a buydown can beat traditional discount points.

Plain-English • Agent-friendly Best used before writing offers

Smart tools to pair with your buydown strategy
Use these calculators to compare rough price and payment ranges—with and without buydowns—so we can layer coaching on top of real numbers instead of guesses.

Run affordability numbers → Estimate monthly payment

Coaching insight

Who this guide is for

This guide is for you if you’ve heard about “1-0 buydowns,” “2-1 buydowns,” or “seller-paid buydowns” and you’re not sure if they’re a smart move—or just another buzzword.

It’s especially helpful if you:

Are a buyer who wants a softer payment in the first few years while you grow income or adjust to homeownership.
Are a seller or listing agent deciding whether to offer a buydown instead of a price cut.
Are a buyer’s agent looking for negotiation tools that help your offers stand out without just “raising price.”
Are comparing a 1-0, 2-1, or 3-2-1 buydown to paying points and want to see when each strategy makes more sense.
Want to talk through options in plain English, with numbers that match your real budget.

The sweet spot is reading this before you write offers—so you know when to ask for a buydown credit, when to ask for points, and when to keep it simple.

Definitions

Temporary buydowns vs. discount points

What a temporary buydown is

A temporary payment reduction funded by a lump-sum buydown deposit at closing.
The note rate stays the same for the life of the loan; the buydown simply subsidizes the payment for a set period.
Common options include:
- 1-0 buydown – your effective rate is 1% lower in year one, then steps up to the full note rate.
- 2-1 buydown – 2% lower in year one, 1% lower in year two, then the full note rate.
- 3-2-1 buydown – 3% lower in year one, 2% in year two, 1% in year three, then the full note rate.
After the buydown period, the payment steps up to the full note rate for the remaining term.

What discount points are

An upfront cost, usually paid by the buyer, to permanently reduce the interest rate.
You pay a one-time fee at closing (often expressed as a percentage of the loan amount).
The tradeoff: higher cost upfront, but a lower payment for the entire life of the loan.
Whether points “pencil out” depends on your break-even timeline—how long you’ll keep the loan.

Both tools change your payment, but in very different ways. The rest of this guide will help you see which one matches your real timeline and plan.

Mechanics

How 1-0, 2-1 and 3-2-1 buydowns actually work

The payment pattern

1-0, 2-1 and 3-2-1 buydowns change what you pay in the early years— not the note rate on your loan.

With a 1-0 buydown, your effective rate is 1% lower in year one, then steps up to the full note rate in year two and beyond.
With a 2-1 buydown, your effective rate is 2% lower in year one and 1% lower in year two.
With a 3-2-1 buydown, it’s 3% lower in year one, 2% in year two, and 1% in year three.
After that, the payment resets to the full note rate for the remaining term.

The buydown “fund”

The difference between the full payment and the reduced payment is covered by a buydown account at the lender or servicer.

This fund is typically paid as a closing cost credit by the seller, builder, or lender.
Each month, the servicer pulls from that fund so you see the lower effective payment.
The loan is still being amortized off the full note rate behind the scenes.

Big picture: a temporary buydown is a way to prepay part of your payment upfront so that your day-one cash flow is easier to live with.

Fine print, in plain English

What happens to the buydown funds?

Behind the scenes, a temporary buydown uses a special buydown or escrow account. At closing, a lump sum is set aside to cover the difference between the full payment at your note rate and the reduced payment you see during the buydown period.

If you sell the home or pay off / refinance during the buydown period, any unused buydown funds are typically applied to reduce your payoff amount — they don’t come back as extra cash in your pocket.
If the loan were to go through foreclosure, remaining buydown funds would generally be applied to reduce the outstanding mortgage balance.
Buydown funds can’t be used to make up past-due payments. Your obligation is always based on the full scheduled payment in your note; the buydown just helps cover part of that payment for a limited time.

Exact handling of buydown funds can vary by program and investor, so we’ll go over how it works for your specific loan before you decide on a strategy.

Contributions

Who can pay for a temporary buydown?

Temporary interest-rate buydowns can be funded by:

The seller – often instead of (or in addition to) a price reduction.
A builder – common in new construction as part of an incentive package.
The lender – sometimes as a promotional credit or in exchange for a slightly higher rate.

There are caps on interested party contributions (seller, agent, builder, etc.) based on loan type, occupancy, and down payment. That’s why we model buydowns inside your full scenario, not in a vacuum.

As an agent, this is a strong talking point: instead of only asking “Will you drop the price?”, you can ask “Would you consider a seller-paid buydown credit to help the buyer’s payment?”

Strategy

When buydowns can beat paying points

Buydown may make more sense when…

A temporary buydown often shines in shorter-to-medium-term horizons.

You expect to refinance within a few years if rates improve.
Your income is likely to grow (promotions, new career, business ramp up).
You want to ease into the payment while you settle other expenses (furnishings, daycare, repairs).
The seller or builder is willing to fund a 1-0, 2-1 or 3-2-1 buydown instead of a simple price cut.

Points may make more sense when…

Discount points tend to shine in longer-term horizons.

You plan to keep the home and loan for a long time.
You have extra cash and want to lock in a lower payment for the life of the loan.
The break-even math shows you’ll save more in interest than the cost of the points—within a timeline you’re comfortable with.
There’s limited room for seller credits, but you can contribute yourself.

The right move isn’t “always buydowns” or “always points.” It’s about matching the tool to your timeline, cash, and risk comfort—and running the math side by side.

Real-world example

Same listing, two offers, different strategies

Example scenario (for education only)

Imagine two buyers making an offer on the same home. Both have similar income, credit, and down payment. The seller is willing to offer a $10,000 credit.

Buyer A uses the credit for a straight price reduction. Their payment drops a bit, and so does the seller’s net.
Buyer B structures the same credit as a 2-1 buydown, creating a much lower payment in years one and two while keeping the price higher.

To the seller, Buyer B’s offer may feel more attractive: similar net proceeds, but a structure that solves the buyer’s payment objection without more price cuts.

To the buyer and agent, the buydown creates breathing room in the early years, with a clear path for how the payment will step up over time.

Next steps

What to think through before choosing a buydown

You don’t need to make this decision alone. But it helps to be clear on a few basics before we model numbers:

Your realistic time horizon – how long you expect to keep this home and this specific loan.
Income and life changes – moves, kids, career changes, or business growth that could affect cash flow.
Available credits – how much room you have for seller, builder, or lender credits within program limits.
Comfort level with payment changes – how it will feel when the payment steps up after the buydown period.
Other priorities – emergency fund, renovations, debt payoff, or investing that also need dollars.

From there, we can compare no buydown, 1-0, 2-1 and 3-2-1 buydowns, and points side by side and build a strategy that fits your reality—not just the rate of the day.

Smart questions

Questions to ask about any buydown offer

Whether the buydown is offered by a seller, builder, lender, or shown in an ad, these questions help you understand what you’re really getting:

Is this a 1-0, 2-1, 3-2-1, or permanent rate buydown (points)?
Who is funding the buydown? (Seller, builder, lender, buyer, or a mix?)
What will my payment be in each year? (Year 1, year 2, year 3, and after the buydown ends.)
What happens if I refinance or sell early? (Any leftover buydown funds, closing costs, etc.)
How does this compare to using the same credit for points or price?
Are there any program limits or contribution caps I should know about?

Clear answers turn a clever marketing pitch into a real strategy you and your agent can trust when it’s time to write or accept an offer.

Ready to see if a buydown fits your plan?
We’ll walk through your income, debts, savings, and timeline—and compare a 1-0, 2-1 or 3-2-1 buydown, points, and no buydown side by side so you can choose the path that supports your budget and long-term goals.

Start your pre-approval → Ask your questions first