Seller-paid 2-1 buydown: what it changes and what it doesn't
How a seller-paid 2-1 buydown steps up over three years, what each loan program lets a seller pay, and why it won't help self-employed income qualify.
In this article
- A seller-paid 2-1 buydown lowers your rate for two years, and you pay the note rate from year three on.
- Fannie Mae, FHA and USDA rules have the lender qualify you at the note rate, so a buydown adds no buying power.
- The buydown's cost counts against the seller's cap on Fannie Mae, FHA and VA loans.
- If the buydown money runs out, you still owe the full note payment.
How does a seller-paid 2-1 buydown work?
A seller-paid 2-1 buydown puts the seller's money in an account that covers part of your interest for two years. Your rate starts lower and steps up to the note rate in the third year. That rate then stays for the rest of the loan.
The "2" and the "1" in the name are the size of the cut, in percentage points, for year one and year two. So your payment goes up in year two and again once the buydown ends. I'd plan for both steps, not just the first one.
On a conventional loan sold to Fannie Mae, Fannie Mae's Selling Guide (B2-1.4-04) lets a temporary buydown cut the rate by up to 3 points for up to 3 years. The same guide limits any increase in the borrower's share of the rate to no more than 1 point a year.
The same Selling Guide section bars temporary buydowns on investment properties and cash-out refinances. If you're buying a rental with a Fannie Mae loan, I'd take this idea off the table.
How much can the seller put toward a buydown?
The buydown's cost counts toward the seller contribution limit on Fannie Mae, FHA and VA loans, so it eats into the same dollars the seller could put toward your closing costs. FHA loans are insured by the Federal Housing Administration (FHA). VA loans are backed by the U.S. Department of Veterans Affairs (VA). USDA loans are backed by the U.S. Department of Agriculture (USDA).
Fannie Mae's cap depends on your loan-to-value (LTV), meaning your loan as a share of the home's value. The cap rises as your LTV falls. That means a buyer with more equity can take more seller money before hitting the ceiling.
| Loan type | Seller contribution limit | Does a seller-paid temporary buydown count? |
|---|---|---|
| Fannie Mae conventional, primary or second home | 3% of the lower of price or appraised value with LTV above 90%; 6% at 75.01% to 90%; 9% at 75% or less | Yes |
| Fannie Mae conventional, investment property | 2% | Not allowed on investment properties (Fannie Mae Selling Guide B2-1.4-04) |
| FHA | 6% of the sales price, according to HUD | Yes, it's inside the 6% |
| VA | No limit on closing costs; concessions capped at 4% of the home's reasonable value | Yes, a seller-funded buydown escrow counts toward the 4% |
| USDA guaranteed | Not allowed above 6% of the sales price, unless USDA provides otherwise | The regulation doesn't say |
Seller money can't cover your down payment or reserves on a Fannie Mae loan. Anything over the cap or over your actual closing costs gets subtracted from the price used to figure your LTV. So a seller offering more than the rules allow doesn't add to your help. It lowers the value your loan is measured against.
If you're still choosing between programs, my FHA vs conventional five-year cost comparison lays the two side by side.
What will I pay once the buydown ends?
Once the buydown ends, you pay the note-rate payment, the same principal and interest you'd pay with no buydown at all. I use the sample loan below to show it. The annual percentage rate (APR) folds the rate and certain loan costs into one yearly figure. The Consumer Financial Protection Bureau (CFPB) is the federal regulator behind the points figure in it.
Example: a $400,000 30-year fixed loan at 6.09% (6.161% APR) with 20% down ($100,000) on a $500,000 home has 360 monthly payments of $2,421.40 in principal and interest. The APR assumes 0.75 discount points ($3,000, the median paid by 2023 home buyers who paid points, according to the CFPB) and no other lender fees. Taxes and insurance are not included, so the actual payment will be higher. The rate is the market average for February 12, 2026 from Freddie Mac Primary Mortgage Market Survey; yours depends on your credit, loan and property.
| Loan amount | Home price | Down payment | Term | Rate | APR | Monthly principal and interest payment |
|---|---|---|---|---|---|---|
| $400,000 | $500,000 | 20% ($100,000) | 30-year fixed, 360 monthly payments | 6.09% | 6.161% | $2,421.40 |
Rate 6.09% (6.161% APR), Freddie Mac market average as of February 12, 2026; the payment leaves out taxes and insurance, and the APR assumptions are in the example above.
With a 2-1 buydown on a loan like that, the first two years come in lower and step up each year. I'd test the note-rate payment against your budget, since it's the one you carry for the rest of the loan. That's what the payment actually looks like for the long haul.
Principal and interest is only part of it. Taxes, insurance and homeowners association (HOA) dues ride on top, and what sets your payment at a $150K income walks through each piece.
Will a buydown help me qualify if my tax returns show less than I make?
No. Fannie Mae, the U.S. Department of Housing and Urban Development (HUD) for FHA loans and USDA all have the lender figure your payment at the note rate. A buydown doesn't stretch thin documented income.
If your accountant wrote off everything legal, your returns can show less than you actually live on. The buydown does nothing about that. The real question is whether your documented income carries the year-three payment.
Tax returns aren't the only way to show that. We close bank-statement and asset-based loans that retail banks turn away. A bank-statement loan uses your business deposits instead of your returns, and how self-employed buyers qualify with bank-statement loans covers how it works.
I don't have a published buydown rule for bank-statement lenders, and different lenders want different deals. Ask each one whether it qualifies you at the note rate or the bought-down rate before you count on anything.
How I know this
I'm a mortgage broker in San Diego, and I shop one file across a network of wholesale lenders instead of working from one bank's rules. I've done this work for 21 years at Rate Rebel (NMLS #282828), and I write about lending in California only. The buydown rules here come from Fannie Mae's Selling Guide, HUD's Handbook 4000.1, VA's Lenders Handbook and USDA's regulations. My self-employed view comes from the bank-statement files we close.
Should you ask the seller for a 2-1 buydown?
Ask a motivated seller for a 2-1 buydown only when you already qualify at the note rate and can carry the year-three payment. If you can't, ask what the same seller dollars would do as closing-cost help or a lower price.
Every buydown dollar comes out of the seller's cap, so you're choosing how to spend one pot. Closing-cost help has its own ceiling: it can't exceed your actual closing costs on a conventional loan. Ask your lender to price both versions on the same day and compare the Loan Estimates line by line.
How seller-paid costs land on your taxes is a question for your CPA.
Self-employed income can also get a second look late in the process, so read whether lenders re-check self-employed income before closing before you write the offer.
A seller-paid 2-1 buydown fits a buyer who already qualifies at the note rate and wants lower payments in the first two years. If your income only barely documents, ask what those seller dollars would do as closing-cost help or a lower price, because a buydown doesn't raise what you can borrow. Before you make the offer, run your numbers at the note rate with my free calculator on this page, which takes a few minutes and doesn't pull credit.
Questions people ask
How does a 2-1 buydown work when the seller pays for it?
The seller funds an account that covers part of your interest for two years. Your rate and payment step up in year two and again in year three, when you start paying the note rate for the rest of the loan. If the buydown money runs out early, you still owe the full note payment.
Does a seller-paid 2-1 buydown let me borrow more?
No. Fannie Mae, HUD for FHA loans, and USDA all have the lender qualify you at the note rate, so the amount you can borrow stays the same. The buydown only lowers what you pay in the first two years.
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