Seller-Paid Buydown
A seller-paid buydown is a strategy where the seller pays an upfront fee to reduce the buyer’s mortgage interest rate for the first few years of the loan. This results in lower monthly payments during the early years of homeownership.
Common Buydown Structures
2-1 Buydown — Rate is reduced by 2% in year one and 1% in year two, then returns to the full rate in year three. Example: If your rate is 7%, you pay 5% in year one, 6% in year two, and 7% from year three onward.
1-0 Buydown — Rate is reduced by 1% in year one only.
3-2-1 Buydown — Rate reduced by 3% in year one, 2% in year two, and 1% in year three.
Who Benefits?
Buydowns work well in markets where sellers are motivated and buyers want to ease into their payments. They can save thousands of dollars in the critical early years of homeownership.