Published January 5, 2024

2-1 Buydowns Explained: The Key To Housing Affordability

Written by John Hurlbut

2-1 Buydowns Explained: The Key To Housing Affordability header image.

Here’s how 2-1 buydowns can make purchasing a home more affordable.

Fortunately, there’s a lending product that can counteract high interest rates: 2-1 buydowns. Let’s go over what this product is, how it works, and how it can help you get into your dream home:

1. How 2-1 buydowns work. A 2-1 buydown works by putting money upfront to lower your mortgage interest rate for the first two years of your loan. The first year, your rate will be 2% lower; the year after that, it will be 1% lower. Then, it will return to normal. This is a fantastic way to ease into your mortgage payment and lower the upfront cost of your loan. If you need to sell, they are also a great concession to offer to your buyers.

2. You can get your seller to pay the upfront cost. Good buyers are hard to find in this housing market due to higher rates. Many sellers are willing to offer concessions to ensure they don’t have to lower their asking price, especially if you have a good agent negotiating for you. This means you can have your seller pay the upfront cost of your 2-1 buydown, and you can sit back and enjoy the discount. As a side note, the money your seller pays will go into an escrow account that will make up the difference you pay each month. In other words, you want your seller to actually pay for the buydown.

"This situation can be a win-win for buyers and sellers."

3. You can refinance when rates come back down. While we probably won’t see rates as low as 3% or 4% again for a long time, most experts agree that interest rates are likely to come down within the next year or two. This timeline fits perfectly with a 2-1 buydown! You can enjoy the benefits and simply refinance to a lower interest rate when your buydown is set to expire. If you have extra money in your escrow account, you can even use that money to pay for your refinance.

The bottom line is that 2-1 buydowns are the best way to purchase a home in this market. If you need to sell, they also make a fantastic incentive to offer to your buyers and keep your listing price high. It's a win-win situation!

I have plenty of experience negotiating 2-1 buydowns for my clients, so if you have any questions or are interested in buying or selling a home, please call or email me. I am always willing to help!