How a temporary buydown works
A temporary buydown lowers your mortgage payment for the first one to three years. In a 2-1 buydown, you pay as if the rate were 2 percentage points lower in year one and 1 percentage point lower in year two. From year three on, you pay the full note rate. The party funding it (the seller, builder, lender or you) puts the difference into an account at closing, and the servicer draws from it each month to make up the shortfall.
- Full payment = principal and interest at the note rate over the full term.
- Bought-down payment for each year = principal and interest at (note rate − that year's reduction) over the same term.
- Monthly subsidy = full payment − bought-down payment.
- Total cost = the sum of 12 months of subsidy for each buydown year. This is the amount that has to be deposited at closing.
This calculator uses the payment-difference method; your lender's figure may differ slightly by rounding. Your loan still amortizes at the note rate, so your balance falls exactly as it would without a buydown. The buydown only changes who pays part of each payment.
Worked example
You borrow $450,000 at a 6.75% note rate for 30 years on a $500,000 home. The full principal and interest payment is $2,918.69. The seller agrees to pay for a 2-1 buydown.
| Year | Your rate | Your P&I | Subsidy / mo. | Subsidy / yr |
|---|---|---|---|---|
| 1 | 4.75% | $2,347 | $571 | $6,855 |
| 2 | 5.75% | $2,626 | $293 | $3,511 |
| 3–30 | 6.75% | $2,919 | $0 | $0 |
The buydown costs about $10,367, or 2.3% of the loan. A 3-2-1 buydown on the same loan costs about $20,383, and a 1-0 buydown about $3,511. With 90% loan-to-value, Fannie Mae lets the seller contribute up to 6% of the $500,000 price, or $30,000, so even the 3-2-1 fits if the seller isn't paying much else.
The rules
At a glance
- Largest rate reduction
- 3 percentage points
- Fannie Mae B2-1.4-04
- Longest buydown period
- 3 years
- Rate can rise at most 1% a year
- Qualifying rate
- Note rate
- Not the bought-down rate
- Seller limit at >90% LTV
- 3%
- 6% at 75.01–90%, 9% at 75% or less
Fannie Mae's Selling Guide allows temporary buydowns on fixed-rate loans (and some ARMs) for a principal residence or second home, but not for investment properties or cash-out refinances. The plan must be in writing and the funds held in a custodial account. If the seller, builder or another interested party pays, the cost counts toward Fannie Mae's interested-party contribution limits, which are a share of the lower of the price or appraised value, not the loan amount.
Edge cases
- Refinancing or selling early. The written agreement says what happens to unused buydown funds if the loan is paid off early. Ask before you sign.
- Buydown vs a price cut vs points. The same seller money could instead lower the price or buy a permanent rate reduction. Compare with the mortgage points calculator.
- Other loan types. FHA, VA and USDA set their own concession rules. This tool's limit check uses Fannie Mae's conventional limits only.
What to do next
Check all seller-paid costs together with the seller concessions calculator, see your full payment with the mortgage calculator, and read mortgage points and rate buydowns.