What you'll need
- Loan amount, note rate and term from your loan estimate
- The structure on offer: 3-2-1, 2-1, 1-0 or your own schedule
- Who is paying for it: seller, builder, lender or you
- Optional: purchase price, loan program and your lender's price per point
What you'll get
- Year-by-year payments — Each bought-down year, then the full payment
- The buydown's cost — The subsidy that has to be escrowed at closing
- Concession check — Fannie Mae and VA limits for a seller-paid buydown
- Versus permanent points — The same money as a rate cut, and the crossover month
Two worked examples you can check by hand
Both are calculated by the same code that runs the calculator above, so this page and the tool always agree. The formula is the standard payment on the full loan amount at each rate, over the original term.
1. A seller-paid 2-1 on $400,000 at 7%, 30 years
- Full payment at the note rate: $2,661 a month. This is the payment you qualify on.
- Year 1 at 5%: $2,147. The escrow account pays $514 a month, $6,167 for the year.
- Year 2 at 6%: $2,398. The account pays $263 a month, $3,156 for the year.
- Total subsidy: $9,323, which is 2.33% of the loan and 1.86% of the $500,000 price. At 80% LTV, Fannie Mae's limit is 6%, or $30,000, so the buydown fits with room for closing costs.
- As points: 2.33 points at 0.25 per point would buy 6.417% permanently, saving $155 a month. The points catch up in month 61.
In year 3 the payment goes up by $514 compared with year 1. That increase is the number to plan around. If you will keep the loan past month 61, ask the seller to put the same credit toward points instead, and check the lender's price in the points break-even calculator.
2. Edge case: a 3-2-1 on $300,000 at 3%, 15 years
Three points off a 3% note leaves year 1 at 0%. The payment is then the loan divided by 180 months, with no interest. The formula has to handle that case without dividing by zero.
- Note payment $2,072. Year 1 at 0%: $1,667 ($300,000 ÷ 180).
- Year 2 at 1%: $1,795. Year 3 at 2%: $1,931.
- Subsidy $4,861 + $3,315 + $1,695 = $9,871, which is 3.29% of the loan.
A smaller loan with a shorter term still costs more here than the 2-1 above. Each point off a low rate removes a bigger share of the payment, and a 3-2-1 runs a third year. If a custom schedule would push any year below 0%, the calculator prices that year at 0% and tells you.
How it works
Enter the loan as written
Loan amount, note rate and term. These never change: the buydown only changes what you pay, not what the loan is.
Pick the structure and who pays
3-2-1, 2-1, 1-0 or a custom schedule. Each bought-down payment is the same loan amortized at the lower rate over the original term.
Read the subsidy, the limit and the alternative
The escrowed cost is the sum of the monthly differences. A seller- or builder-paid buydown is checked against the program's concession cap, and the same money is re-priced as permanent points.
The rules this calculator applies, and where they come from
| Rule | What it says | Source (read October 10, 2026) |
|---|---|---|
| Qualifying payment | The note-rate payment, not the bought-down payment | Fannie Mae B2-1.4-04; VA Temporary Buydowns |
| Length and step-up | Up to 3 years; the payment rate rises by no more than 1% a year | Fannie Mae B2-1.4-04; VA Temporary Buydowns |
| Conventional seller/builder limit | 3% above 90% LTV, 6% at 75.01%–90%, 9% at 75% or less (principal residence or second home), of the lower of price or appraised value | Fannie Mae B3-4.1-02 |
| VA seller/builder limit | 4% of the reasonable value, as a seller concession | VA Temporary Buydowns |
| FHA limit | 6% of the sales price; interested-party payment for permanent and temporary buydowns counts toward it | HUD Handbook 4000.1, II.A.4 (Update 18, 2026-08-12) |
| Value of one point | 1% of the loan; the rate cut it buys varies by lender (seeded at 0.25) | CFPB |
Sources: Fannie Mae Selling Guide B2-1.4-04, Temporary Interest Rate Buydowns (topic dated 08/07/2024): buydown period not greater than 3 years; increases of not more than 1% in the borrower's portion of the rate in each 1-year interval; the lender must qualify the borrower at the note rate without consideration of the bought-down rate; interested-party contribution limits apply when an interested party funds it; investment properties and cash-out refinances ineligible; funds are not refundable unless the loan is paid off before they have all been applied. Fannie Mae Selling Guide B3-4.1-02, Interested Party Contributions (topic dated 05/07/2025): maximum financing concessions for a principal residence or second home are 3% above 90% LTV/CLTV, 6% at 75.01%–90% and 9% at 75% or less (2% for an investment property), calculated on the lower of the sales price or appraised value; when an interested party or affiliated lender funds a temporary or permanent buydown, the cost of that subsidy must be included in the IPC calculation. U.S. Department of Veterans Affairs, Temporary Buydowns (last updated January 14, 2026): available on all fixed-rate VA loans; may be funded by the seller, lender, builder or Veteran; buydowns provided by the builder or seller are a seller concession, capped at 4% of the reasonable value; payment increases capped at no more than 1% a year over one to three years; the lender qualifies the borrower on the full payment due after the buydown ends; escrowed funds cannot be returned to the funding party and are applied to the debt on payoff. HUD Handbook 4000.1, Update 18, issued August 12, 2026 (II.A.4 and II.A.5), read 2026-10-11.
A temporary buydown lowers your mortgage payment for the first one to three years while the loan itself stays at its full note rate. Someone — usually the seller or builder — deposits the difference into an escrow account at closing. On a $400,000 loan at 7%, a 2-1 buydown costs $9,323, a 3-2-1 costs $18,342 and a 1-0 costs $3,156.
How a temporary buydown works
The numbers in the name are the percentage points taken off the rate your payment is calculated at, one year at a time. A 2-1 buydown on a 7% loan means you pay as if the rate were 5% in year 1 and 6% in year 2. From year 3 you pay the full 7% payment for the rest of the loan. A 3-2-1 adds a third year and starts 3 points lower. A 1-0 covers year 1 only.
Nothing about the loan changes. The note rate is still 7%. The lender still receives the full note-rate payment every month — your reduced payment plus a draw from the escrow account — and your balance falls on the 7% schedule. That is why the subsidy is easy to calculate: it is the gap between the two payments, month by month, added up.
What a 3-2-1, 2-1 and 1-0 cost on the same loan
Same $400,000 loan, 7.00% note rate, 30 years. The full payment is $2,661 a month, and each reduced payment amortizes the same loan at the lower rate over the original 30 years.
| Structure | Year 1 payment | Year 2 payment | Year 3 payment | Total subsidy | % of loan |
|---|---|---|---|---|---|
| 3-2-1 | $1,910 | $2,147 | $2,398 | $18,342 | 4.59% |
| 2-1 | $2,147 | $2,398 | $2,661 | $9,323 | 2.33% |
| 1-0 | $2,398 | $2,661 | $2,661 | $3,156 | 0.79% |
Principal and interest only. Computed by this calculator's engine; the 2-1 row is worked by hand on this page.
The 3-2-1 costs about twice as much as the 2-1 for one extra year. Its first year alone ($9,019) costs more than the whole 1-0, because the first percentage point off a payment is worth the most and the 3-2-1 stacks three of them.
Seller-paid buydowns and concession limits
Most temporary buydowns are paid by the seller or a builder as an incentive. To the loan programs, that makes the buydown a contribution from an "interested party", and it has to fit under the same cap as any other seller-paid costs.
- ·Conventional (Fannie Mae). For a principal residence or second home: 3% of the lower of price or appraised value when the loan-to-value is above 90%, 6% at 75.01%–90%, and 9% at 75% or less. The buydown's cost counts toward that limit when an interested party or an affiliated lender pays for it.
- ·VA. A buydown from the seller or builder is a seller concession, capped at 4% of the reasonable value.
- ·FHA. Interested parties may contribute up to 6% of the sales price toward origination fees, other closing costs, prepaid items and discount points, and that 6% limit includes the interested party's payment for permanent and temporary interest rate buydowns. A seller-paid buydown therefore uses up the same 6% as the seller's other closing-cost credits (HUD Handbook 4000.1, II.A.4 and II.A.5, Update 18, issued August 12, 2026). Temporary buydowns are not permitted on refinance or ARM transactions under that handbook.
The cap is shared. A seller who has already agreed to pay part of your closing costs has less room left for a buydown, and the reverse is also true. In the 2-1 example the buydown uses 1.86% of a $500,000 price, which leaves room under a 6% limit for closing costs as well. Price your closing costs in the closing costs calculator before you decide how to split a seller credit.
Temporary buydown or permanent points?
The same money could buy discount points instead, which lower the rate for the life of the loan. The calculator converts the subsidy into points (one point is 1% of the loan) and prices them at a rate cut you enter. With 0.25 percentage points per point, the $9,323 from the 2-1 buys a permanent rate of about 6.42%. That saves $155 a month for as long as you keep the loan.
The temporary buydown pays out all $9,323 in the first two years. The points need until month 61 to deliver the same amount, and every month after that they are ahead. So the question is how long you will keep the loan. If you expect to refinance when rates fall or to move within about five years, the temporary buydown did more. If you will stay, points did more. Points also lower the payment you qualify on, which a temporary buydown never does.
How much rate a point buys varies by lender, loan and market, so replace the default with a real quote. To test a points offer on its own, use the mortgage points break-even calculator. To see the full monthly payment once taxes and insurance are added, use the mortgage calculator.
When a temporary buydown makes sense, and when it does not
- ·It fits when a seller or builder is offering money you would not otherwise get, your income is expected to rise, or you expect to refinance within the buydown years. Under Fannie Mae's rules, unused funds are not lost if the loan is paid off early: the agreement can credit them to the payoff or return them to you or the lender.
- ·Be careful when the full payment is already a stretch. The payment step from year 1 to the note rate in the 2-1 example is $514 a month. If you cannot carry that today, the buydown only delays the problem.
- ·Ask for the alternative when a lender offers to pay for the buydown. Lenders usually fund it through a higher note rate. Compare that note rate against a quote without the buydown before you treat the subsidy as free.
- ·It is not available on a Fannie Mae investment property or cash-out refinance. Fannie Mae limits it to fixed-rate loans and certain ARM plans.
Methodology
Each bought-down payment is the standard amortizing payment on the original loan amount at the reduced rate over the original term (no recast). The subsidy is the sum of the monthly differences from the note-rate payment, undiscounted. A rate that a custom schedule would push below zero is priced at 0%. Concession limits use the purchase price, while the programs use the lower of price and appraised value (Fannie Mae) or reasonable value (VA). The note-rate default is the Freddie Mac 30-year average for the week of October 8, 2026. Program rules were read at the source on October 10, 2026.
Sources
- Fannie Mae Selling Guide B2-1.4-04, Temporary Interest Rate Buydowns — accessed 2026-10-10
- Fannie Mae Selling Guide B3-4.1-02, Interested Party Contributions (IPCs) — accessed 2026-10-10
- U.S. Department of Veterans Affairs, Temporary Buydowns — accessed 2026-10-10
- HUD Handbook 4000.1 (FHA Single Family Housing Policy Handbook), Update 18, issued 2026-08-12: II.A.4 Interested Party Contributions (TOTAL) and II.A.5 (manual underwriting) — accessed 2026-10-11
- CFPB, What are discount points and lender credits and how do they work? — accessed 2026-10-10
- Freddie Mac Primary Mortgage Market Survey (week of October 8, 2026) — accessed 2026-10-15
What this calculator does not model
Interest the escrow account might earn, or a discount on funding it
The subsidy here is the plain sum of the monthly payment differences — the figure a buydown agreement is normally funded at. Some agreements discount it slightly for the time value of money, and some escrow accounts earn interest. Neither is standard enough to model, so the page shows the undiscounted total, which is the larger and safer number for a seller budgeting a concession.
A lender credit funded by a higher note rate
A lender-paid buydown is not free money: lenders usually fund it by pricing the note rate higher than they otherwise would. How much higher is a pricing decision that varies by lender and day, so the calculator treats the note rate you enter as given. Compare the note rate on a lender-paid offer against a quote without one before treating the subsidy as a gift.
FHA's concession limit and buydown rules
HUD Handbook 4000.1 (Update 18, issued August 12, 2026) caps interested-party contributions, including payment for temporary buydowns, at 6% of the sales price. The calculator does not check that limit for FHA loans: the payment schedule and subsidy are the same arithmetic on any fixed-rate loan, and whether an FHA seller contribution fits under the 6% is a question for your lender.
Refinancing or selling during the buydown
The subsidy is computed for the full buydown period. If the loan is paid off early, Fannie Mae's guide lets the buydown agreement credit the unused funds to the payoff or return them to the borrower or lender as the agreement specifies; VA applies remaining funds to the debt. The calculator assumes the loan runs at least through the buydown.
Related Calculators
Mortgage Points Break-Even Calculator
The permanent alternative on its own: how long a points quote takes to pay back at your lender's real pricing.
Mortgage Calculator
The full monthly payment at the note rate once property tax, insurance and PMI are added to the principal and interest above.
Closing Costs Calculator
A seller credit usually has to cover closing costs and the buydown under one cap. Price the closing costs first.
ARM vs Fixed Rate Calculator
The other way to start with a lower payment — with a rate that can rise, rather than a payment that steps up on schedule.
About this calculator
How much does a 2-1 buydown cost?
It costs the sum of the payment differences it covers. On a $400,000 30-year loan at a 7.00% note rate, the full payment is $2,661 a month. Year 1 is paid at 5.00% ($2,147) and year 2 at 6.00% ($2,398), so the escrow account has to cover $6,167 plus $3,156: $9,323 in total, about 2.3% of the loan. A 3-2-1 on the same loan costs $18,342 and a 1-0 costs $3,156.
Do I qualify for the loan at the bought-down rate?
No. Fannie Mae's Selling Guide requires the lender to qualify you at the note rate without considering the bought-down rate, and VA requires qualification on the full payment due after the buydown ends. In the 2-1 example that is $2,661 a month, not the $2,147 you pay in year 1. A temporary buydown lowers your early payments; it does not raise the price you can afford.
Can the seller pay for a temporary buydown?
Yes, and it counts against the loan program's concession limit. Fannie Mae counts a seller- or builder-funded buydown as an interested-party contribution: for a principal residence or second home the limit is 3% of the lower of price or appraised value above 90% LTV, 6% at 75.01%–90% and 9% at 75% or less. VA counts it as a seller concession capped at 4% of the reasonable value. In the 2-1 example the $9,323 buydown is 1.86% of a $500,000 price, inside the 6% conventional limit at 80% LTV.
Is a temporary buydown better than buying points?
It depends on how long you keep the loan. The $9,323 from the 2-1 example is 2.33 discount points; at 0.25 percentage points per point that buys a permanent rate of about 6.42%, saving $155 every month. The temporary buydown delivers all of its savings in the first two years; the points catch up in month 61. Sell or refinance before then and the buydown did more; stay longer and points would have. Points also lower the payment you qualify on. The rate a point buys varies by lender, so use a real quote.
What are the rules for a temporary buydown?
For a Fannie Mae conventional loan, the buydown period can be no longer than 3 years, and the borrower's share of the rate can rise by no more than 1% in each year. Investment properties and cash-out refinances are not eligible. VA allows temporary buydowns on all fixed-rate VA loans, over one to three years, with payment increases of no more than 1% a year. For FHA loans, HUD Handbook 4000.1 (Update 18, issued August 12, 2026) caps interested-party contributions at 6% of the sales price, and that cap includes interested-party payment for temporary buydowns.
What happens to the buydown money if I refinance or sell early?
Under Fannie Mae's guide, buydown funds are not refundable unless the loan is paid off before they have all been applied. In that case the agreement can credit the remainder to the payoff or return it to the borrower or the lender, as the agreement specifies. VA says escrowed buydown funds cannot be returned to the party that funded them, and any remainder is applied to the debt when the loan is paid off.