Feeling the pinch of Seattle’s higher home prices and today’s mortgage rates? You are not alone. Many buyers want a way to ease into monthly payments without giving up the long-term stability of a fixed-rate loan. A 2-1 buydown can help by lowering your payment for the first two years, which can be especially useful as you adjust to property taxes, insurance, and HOA dues. In this guide, you will learn exactly how a 2-1 buydown works, what it costs, who can fund it, and how to compare it with paying points for a permanent rate reduction. Let’s dive in.
What is a 2-1 buydown?
A 2-1 buydown is a temporary mortgage interest-rate subsidy on a fixed-rate loan. Your interest rate is reduced by 2 percentage points in year one and 1 percentage point in year two. In year three and beyond, your payment returns to your full note rate for the rest of the loan term.
The full interest rate you agreed to is recorded on your mortgage note. The difference between that note-rate payment and the lower promotional payments in years one and two is covered by money set aside in a subsidy account at closing. The loan servicer applies those funds each month to keep your payment lower during the buydown period.
The key point: the buydown changes your payment for two years, not the long-term interest rate on your loan.
Who pays for the buydown?
Several parties can fund a 2-1 buydown, and it can be a blend of sources:
- Seller
- Builder or developer
- Lender (as a credit or incentive)
- You, the buyer
- A combination of the above
The subsidy funds are typically deposited into an escrow-style account at closing and applied by the servicer each month during the two-year period. The buydown must be clearly shown in your loan and closing documents.
How much does it save per month?
The easiest way to see impact is to run the numbers. Here is a clear, Seattle-scale example to show the mechanics. These numbers are illustrative only and not a rate quote.
Assumptions:
- Purchase price: $700,000
- Down payment: 20% → Loan amount $560,000
- Loan term: 30-year fixed
- Note (contract) interest rate: 6.50%
- 2-1 buydown: Year 1 at 4.50%, Year 2 at 5.50%, Year 3+ at 6.50%
Monthly principal and interest (P&I), rounded:
- Note rate 6.50%: about $3,541 per month
- Year 1 at 4.50%: about $2,837 per month → savings about $704 per month in year one
- Year 2 at 5.50%: about $3,180 per month → savings about $361 per month in year two
- Year 3+: reverts to about $3,541 per month
Total subsidy typically required:
- Year 1: $704 x 12 = $8,448
- Year 2: $361 x 12 = $4,332
- Two-year total: about $12,780
In this scenario, roughly $12.7k to $13k is deposited at closing to fully fund the buydown on a $560k loan. Your monthly payment is meaningfully lower for two years, then steps up in year three.
Why this matters in Seattle
Seattle and King County have higher-than-average home prices, and overall ownership costs can feel steep. A 2-1 buydown helps you manage early cash flow while you get settled. Just remember to add property taxes, homeowners insurance, and any HOA dues to your P&I payment when planning your full monthly budget. Lower early payments can make the transition smoother, but it is smart to plan ahead for the payment step-up in year three.
Qualifying and underwriting
Many lenders still qualify you using the full note-rate payment, even if you plan to use a temporary buydown. In that case, a 2-1 buydown helps your cash flow, but it does not increase your maximum approved loan amount. Some lenders may allow qualification using the reduced buydown payment if the subsidy is fully funded and investor guidelines permit it. If you are close to debt-to-income limits, ask your lender early which method they use.
Seller concession limits you should know
If you plan to have the seller fund the buydown, your loan program may cap how much a seller can contribute:
- Conventional (conforming) loans often cap seller concessions around 3% of the price with under 10% down, around 6% with 10–25% down, and around 9% with 25% or more down.
- FHA typically allows up to 6% in seller concessions on most items.
- VA rules are different and can be nuanced, with common discussions around 4% for certain concessions. Confirm with your lender on VA specifics.
Guidelines change, so verify the current caps for your exact program and down payment.
2-1 buydown vs paying points for a lower rate
A temporary buydown and a permanent rate buy-down solve different problems. Here is a quick way to compare.
Pros of a 2-1 buydown:
- Immediate payment relief in years one and two
- Often costs less than buying the rate down permanently to the same early-year level
- Attractive for sellers and builders as a targeted incentive
Cons of a 2-1 buydown:
- Payment increases when the subsidy ends
- No long-term interest savings beyond two years
- Might not improve qualifying if the lender uses the note-rate payment
Pros of paying points for a permanent rate reduction:
- Lowers your payment for the life of the loan
- Reduces total interest paid if you keep the loan long term
- Can be more compelling if you plan to stay put for many years
Cons of paying points:
- Higher upfront cost at closing
- Break-even depends on how long you keep the loan
- May be harder to swing if you need to preserve cash for down payment and closing costs
How to decide
- If you need near-term payment relief and expect income growth, a life change, or a possible move within a few years, a 2-1 can fit well.
- If you plan to own and hold your loan for many years, run a break-even on paying points. Compare the upfront cost of points to the monthly savings to find your break-even month.
Seattle negotiation tips
- In a competitive, seller-leaning market, sellers may prefer a higher price over concessions. In that case, consider asking for a smaller buydown paired with targeted closing-cost help.
- In a balanced or buyer-leaning market, sellers and builders often use 2-1 buydowns to help rate-sensitive buyers. A buydown can be more appealing than a price cut because it preserves the contract price while delivering tangible monthly savings for you.
- For new construction, builders commonly offer temporary buydowns as part of their incentives package. Compare that offer to alternative options, including a permanent rate buy-down or additional closing-cost credits.
A practical step-by-step checklist
Use this quick plan to keep your purchase on track:
Early-stage
- Ask your lender whether you will be qualified at the note-rate payment or the reduced buydown payment. Get it in writing.
- Request the lender’s exact subsidy calculation and how the servicer will fund and apply it.
- Confirm seller-concession limits for your loan program and down payment.
Negotiation stage
- Decide whether to prioritize a 2-1 buydown, permanent points, a price reduction, or general closing-cost support. Compare the net effect on your monthly payment and cash to close.
- Run numbers using realistic local price points and include taxes, insurance, and any HOA dues.
Pre-closing
- Ensure the buydown is clearly documented in the purchase agreement and loan disclosures.
- Confirm who is paying, how much, and that funds will be deposited correctly at closing.
- Ask whether the buydown affects your escrow or impound setup for taxes and insurance.
Post-closing
- Keep the payment schedule showing your reduced payments for years one and two and the date your payment steps up.
- Set a reminder to revisit your budget before year three begins.
Taxes and accounting basics
The tax side can be nuanced. A seller-paid temporary subsidy is often not treated as your taxable income. Deductibility of points depends on who pays, how points are listed on the closing disclosure, whether it is a purchase or refinance, and IRS rules. Because buydowns are typically third-party payments to the lender or servicer, talk with a tax professional to understand your situation.
Key takeaways for King County buyers
- A 2-1 buydown creates meaningful short-term savings on higher Seattle-area loan amounts, which can help you ease into total housing costs.
- In our $700k purchase example with a $560k loan, the buydown saves about $704 per month in year one and about $361 per month in year two, funded by roughly $12.7k at closing.
- Whether the seller, builder, lender, you, or a combination funds it, the buydown must be clearly disclosed and fully funded at closing.
- Compare a temporary buydown to paying points using a simple break-even analysis and your expected time horizon in the home.
Ready to explore how a 2-1 buydown could work for your next Seattle move? Reach out to the neighborhood-focused team at Mr Magnolia to walk through the numbers, discuss negotiation strategies, and map a plan that fits your goals.
FAQs
What is a 2-1 buydown on a fixed-rate mortgage?
- A 2-1 buydown temporarily lowers your interest rate by 2 percentage points in year one and 1 percentage point in year two, then returns to the full note rate in year three.
Who can pay for a 2-1 buydown in Seattle?
- The subsidy can be funded by the seller, builder, lender, you as the buyer, or a combination, with funds deposited at closing and applied by the loan servicer.
How much does a 2-1 buydown cost on a typical Seattle loan?
- In a $700k purchase with a $560k loan at a 6.50% note rate, the two-year subsidy is about $12,780, producing lower payments in years one and two.
Does a 2-1 buydown help me qualify for more?
- Often lenders qualify you at the full note-rate payment, so it may not increase your qualifying power unless your lender allows qualification at the reduced payments under investor rules.
What are the seller concession limits I should expect?
- Conventional loans often cap concessions near 3%, 6%, or 9% depending on your down payment, FHA commonly allows up to 6%, and VA rules differ, so confirm current limits with your lender.
Is a 2-1 buydown better than paying points?
- It depends on your time horizon and cash needs: a 2-1 buydown lowers payments early, while paying points reduces your rate for the life of the loan and may save more if you hold the loan long term.