Temporary Rate Buydowns – Lower Your Payment for 1-3 Years

Typically the seller or builder pays. The buydown cost is negotiated as a seller concession at closing – for example, the seller agrees to contribute 2% of purchase price toward buydown costs. In new construction, builders often advertise "2-1 buydown included" as a sales incentive.

Buyers can pay for their own buydown, but it rarely makes financial sense. If you have extra cash, you're usually better off making a larger down payment or buying permanent discount points instead. Buydowns are most valuable when someone else funds them.

No – they're different:

• Temporary buydown (2-1, 3-2-1): Rate is reduced for 1-3 years, then returns to full market rate. The reduced payments in early years are subsidized from an escrow account funded at closing.
• Permanent discount points: You pay an upfront fee (typically 1% of loan = 0.25% rate reduction) to permanently lower your interest rate for the entire 30-year term.

Example: A 2-1 buydown at 7% gives you 5% Year 1, 6% Year 2, then 7% forever. Buying 2 points might give you 6.5% permanently. Different strategies for different goals.

You lose the remaining buydown funds – they don't transfer or refund. The buydown money is held in a separate escrow account that pays the difference between your subsidized rate and the full rate each month. If you refinance or sell in Year 1 of a 2-1 buydown, the Year 2 subsidy money stays with the lender (you don't get it back).

This is why buydowns work best when you're confident you'll stay in the loan for at least 2 years. If rates drop fast and you refi after 6 months, you only captured partial benefit. That said, even partial savings is better than nothing (and it was free to you if seller-paid).

Maybe, depending on lender policy. Some lenders qualify you based on the reduced Year 1 payment (which would allow you to qualify for more home), while others require you qualify at the full note rate to ensure you can afford the payment after the buydown expires.

Fannie Mae/Freddie Mac guidelines: For conventional loans, lenders typically must qualify borrowers at the note rate (the full 7% in our example), not the bought-down rate. This protects borrowers from payment shock. FHA and VA have similar rules. So while your actual payment is lower in Year 1-2, your qualification is based on the higher payment – meaning you can't stretch your budget more than normal.

Bottom line: Buydowns help your cash flow in early years, but don't typically help you qualify for a larger home.

Yes – buydowns are allowed on FHA, VA, USDA, and conventional loans. The mechanics are the same across all programs. The seller/builder funds an interest rate subsidy account at closing, and that account makes supplemental payments to reduce your effective rate for 1-3 years.

Nevada-specific: Buydowns are particularly common with VA loans in Nevada (large veteran population) and on new construction throughout Las Vegas and Reno metros. Builders use them as alternatives to price cuts because it helps preserve comparable sales values while still giving buyers relief.

Negotiate it in your purchase offer. Your real estate agent can include a request for seller concessions specifically earmarked for a 2-1 buydown. For example: "Seller to contribute 2% of purchase price ($8,000 on $400K home) toward a 2-1 interest rate buydown at closing."

For new construction: Ask the builder's sales rep if they offer rate buydowns as an incentive. Many Nevada builders (especially in North Las Vegas, Henderson, and Reno new developments) have pre-set buydown programs. They may offer "Choose between $10K price reduction OR a 2-1 buydown."

Tip: Work with a lender (like us!) early in the process. We can calculate the exact buydown cost and show sellers how much they need to contribute, making negotiations smoother.