Lower Payments Now. A Clear Path to the Full Payment.
A 3-2-1 temporary buydown can reduce the effective payment rate during the first three years of an eligible mortgage, giving qualified homebuyers a more gradual transition to the full note-rate payment.
See the Payment ExampleHow 3-2-1 Works
Year 1: Payment based on 3 percentage
points below the note rate.
Year 2: 2 points below.
Year 3: 1 point below.
Year 4+: Full note-rate payment.
What Could a 3-2-1 Buydown Look Like?
Suppose a buyer purchases a $625,000 home, puts 20% down and finances $500,000 with a 30-year fixed mortgage at a 7% note rate.
Principal and interest payment based on a rate 3 points below the 7% note rate.
Principal and interest payment based on a rate 2 points below the note rate.
Principal and interest payment based on a rate 1 point below the note rate.
The borrower makes the full principal and interest payment based on the note rate.
What If Market Rates Fall?
A temporary buydown gives you a defined payment schedule from the beginning. If market rates decline during the buydown period, we can review whether refinancing into a new mortgage makes financial sense at that time. Refinancing is not guaranteed and would be subject to then-current rates, costs, eligibility and loan terms.
Why Buyers May Consider It
A lower initial payment can make the first years of homeownership easier to plan for while the borrower knows in advance how the scheduled payment changes each year.
3-2-1 or 2-1?
Many buyers hear about 2-1 buydowns. Depending on the transaction and available program, we can also review whether a 3-2-1 temporary buydown is an option and compare the structures.
Understanding the Strategy
Does the mortgage itself start at 4% in this example?
No. In this illustration, the note rate is 7%. Temporary buydown funds are used to subsidize the payment during the buydown period.
Do I qualify using the reduced first-year payment?
Qualification depends on the applicable mortgage program and underwriting requirements. The reduced payment should not be assumed to be the qualifying payment.
Who Pays for the Buydown?
Funding depends on the transaction and program. Seller, lender or other permitted contributions may be possible subject to applicable guidelines and limits.
Can I refinance during the buydown period?
Potentially. If market conditions change, we can review a refinance at that time. A refinance is a new transaction and is subject to qualification, costs, available rates and terms.
Compare 3-2-1 and 2-1 Buydown Options
Let's look at your purchase price, loan amount and available options to see whether a temporary buydown fits your home-buying plan.
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