What Is a 3-2-1 Buydown?

A 3-2-1 buydown is a temporary interest rate reduction that lasts for the first three years of your mortgage. Your rate is reduced by three percentage points in year one, two percentage points in year two, and one percentage point in year three. Starting in year four, your rate returns to the original rate stated on your loan, known as the note rate, and stays there for the rest of the term.

How the Payments Change

Here is a hypothetical example to show how payments can step up over time. It assumes a $400,000 loan on a 30-year fixed mortgage with a 6.5% note rate, and shows principal and interest only (not taxes, insurance, or mortgage insurance).

In this example, payments are about $732 lower per month in year one, about $501 lower in year two, and about $257 lower in year three, compared with the full note-rate payment. These figures are for illustration only and are not a rate quote. Actual rates and payments will vary.

How Is a Buydown Paid For?

A temporary buydown isn’t free. The money that covers the lower payments is set aside upfront at closing, and it’s used to make up the difference between your reduced payment and the full note-rate payment each month. Depending on the transaction, the funds may come from:

• The seller, as part of a seller concession negotiated in the contract
• A builder, as an incentive on new construction
• The buyer
• Another eligible source, depending on loan program guidelines

Because the cost is roughly equal to the payment savings, a buydown is best understood as a way to shift when you pay, not as a way to avoid paying. Paulo and Alex will help you review the costs and who may be able to contribute.

Benefits of a 3-2-1 Buydown

Lower Payments When Budgets Are Tightest

The early years of homeownership often include moving and setup costs. Lower payments can add breathing room to your monthly budget.

Time to Grow Into the Payment

If you expect your income to rise, a gradual step-up may feel more comfortable than starting at the full payment.

Helpful for Negotiation

In some markets, buyers use a seller-paid buydown as a negotiating tool instead of asking for a price reduction.

Keeps Your Loan Structure Familiar

You still get a fixed-rate mortgage, and the buydown simply adds a temporary reduction at the beginning.

Important Things to Consider

A 3-2-1 buydown can be helpful, but it’s important to plan ahead:

• It’s temporary. By year four, you’ll pay the full note-rate payment.
• You’ll need to be comfortable with the future payment. Lenders often qualify buyers based on the full payment, but you should also make sure it fits your long-term budget.
• The note rate may be higher than the rate on a loan without a buydown, depending on how the deal is structured.
• It isn’t available for every loan or situation. Eligibility depends on the loan program, lender, and property.
• Refinancing or selling early may affect any remaining buydown funds, depending on the terms.

Buydowns vs. Permanent Rate Reductions

A temporary buydown lowers your payment only for a few years. By contrast, paying discount points can lower your rate for the entire life of the loan. Which is better depends on how long you plan to keep the loan and how you want to use your money. Try the buydown calculator and the “should I buy points?” calculator to compare, and Paulo and Alex can walk through the numbers with you.

Other Buydown Options

If a 3-2-1 structure isn’t the right fit, you can also explore 2-1 buydowns, which reduce the rate for two years, and 1-0 buydowns, which reduce the rate for the first year only.

Who May Benefit From a 3-2-1 Buydown?

This option may be worth considering if you:

• Are buying a home and expect your income to grow
• Want lower payments during your first years in the home
• Are negotiating with a seller or builder who may offer concessions
• Plan to stay in your home long enough to benefit from the structure
• Have a plan to handle the full payment in year four

Loan Programs to Pair With a Buydown

Buydown availability depends on the loan program and lender guidelines. Paulo and Alex can review which programs may work for you, including conventional loans, FHA loans, and VA loans. If you need help with upfront costs, ask about down payment assistance. Use the home affordability calculator and check today’s rates as you plan.

The Process, Step by Step

1. Consultation: Share your goals, budget, and timeline with Paulo or Alex.
2. Compare options: Review payment schedules, costs, and alternatives.
3. Negotiate: Discuss possible seller or builder contributions with your agent.
4. Application and documents: Submit your financial information.
5. Underwriting and appraisal: Your file and property are reviewed.
6. Closing: Finalize your loan and your buydown funds.

Why Work With Paulo Maria and Alex Maria?

A buydown is a strategy, and strategies work best when you understand every number. Paulo Maria (NMLS #1372655) and Alex Maria (NMLS #2120289) with Barrett Financial Group (Company NMLS #181106) provide clear explanations, honest comparisons, and a wide range of loan programs, so you can decide whether a 3-2-1 buydown fits your plans.

Ready to Explore a 3-2-1 Buydown?

Contact Paulo Maria at (702) 219-8214 or Alex Maria at (702) 713-0536, or visit 8485 W Sunset Rd, Suite 202, Las Vegas, NV 89113, to discuss your options.

[Get Personalized Loan Options] | [Call Paulo: (702) 219-8214] | [Call Alex: (702) 713-0536]