A 2-1 buydown calculator answers one question: how much money has to sit in the buydown account so your first two years cost less? The answer is simple arithmetic once you see what the money buys.

This guide gives you the calculator, the three-step math behind it and a worked Las Vegas example. It also covers the rules that decide whether the deal works: seller credit limits, qualifying, leftover money and the loans that cannot have a buydown at all.

2-1 buydown calculator: what will it cost on your loan?

Use this calculator to price a 2-1 buydown on your own numbers. It shows your full payment, the lower payment in years one and two, and the total that must be set aside at closing. Then it checks that total, plus any other seller credits, against the limit for your loan type.

Every figure comes from what you type. The page fills in nothing for you. The math covers principal and interest only, which is the part of your payment set by your note (the loan contract you sign). Your property taxes, homeowners insurance and any mortgage insurance stay the same.

How do you calculate a 2-1 buydown?

You calculate a 2-1 buydown in three steps. First, though, here is what you are pricing. A 2-1 buydown is a temporary buydown, which means money paid up front to lower your payment for a set time. With a 2-1, that time is two years.

1. Find three payments. Work out the principal and interest payment at your note rate. Then do it again at 2 percentage points lower and at 1 percentage point lower.
2. Find the two monthly savings. Subtract the year-one payment from the full payment. Next, subtract the year-two payment from the full payment.
3. Multiply and add. Multiply each monthly saving by 12. Then add the two results. That total is the cost of the buydown.

That money goes into a buydown account. Fannie Mae, the company that buys many home loans from lenders, requires those funds to sit in a custodial bank account. That is an account kept apart from the lender's own money. Meanwhile, HUD, the agency that runs the FHA program, requires the lender to set up an escrow for them. An escrow here is an account held by a third party that pays out only under set rules.

Here is the quick check worth knowing. On a fixed-rate loan, the year-one saving is always a little less than double the year-two saving. So the cost lands a little under 36 times the year-two monthly saving. If a quote comes in well above that, ask how it was figured.

One small caution. A lender works this math to the cent and may round each month its own way. So the figure in your buydown agreement can differ from a calculator by a few dollars.

What does a 2-1 buydown cost on a Las Vegas home?

In the example below, it costs $8,640. Every figure is an assumption chosen to make the arithmetic easy to follow. None of it is a quote, an offer or a commitment to lend.

Check the first row. The account starts at $8,640, and year one uses $5,712. That leaves $8,640 minus $5,712, or $2,928, which is exactly what year two needs.

So the account is empty after 24 months. In year three, your payment rises to the full amount in your note. The step-up is real, but it is the payment your lender used to qualify you. The qualifying section below explains why.

What is the average cost of a 2-1 buydown?

There is no fixed price. The cost depends on two things: how much you borrow and your note rate. A bigger loan or a higher rate means bigger monthly savings, so the account costs more.

That is why a percent-of-price rule of thumb can mislead you. In our example, $8,640 is about 2 percent of the $425,000 price. As a check, $425,000 times 0.02 is $8,500, and $8,640 sits just above it. On a different loan size or rate, however, that share changes.

Fannie Mae does not cap the dollar amount of a buydown, either. Its rule is only that the amount must match the terms of the buydown period. So the honest way to find your cost is to run your own loan through the calculator above. Then ask your lender for the exact figure in writing.

Who can pay for a 2-1 buydown, and how much can a seller put in?

A seller, a builder, the lender or you can pay for it. Fannie Mae's rules cover buydowns paid for by interested parties and by the lender. An interested party is someone with a stake in the sale, such as the seller, a builder or a real estate agent.

When a seller or builder pays, the money counts toward a limit on seller help. Fannie Mae and HUD both say so in plain terms. The limit depends on your loan type and, on a conventional loan, on your loan-to-value ratio, or LTV. LTV is your loan amount divided by the home's value.

Watch the 3 percent row. It applies only if you borrow more than 90 percent of the price, and a bigger loan also makes the buydown cost more. Suppose the seller also offers $6,000 toward closing costs. Then $8,640 plus $6,000 is $14,640. That is $1,890 over the $12,750 limit. Under Fannie Mae's rules, money over the limit is treated as a sales concession. A sales concession comes off the price used to size your loan, so it can raise the cash you need at closing.

The fix is usually to trim the package so it fits, or to trade some credits for a lower price. On an FHA loan, our page on FHA 2-1 buydown rules covers the 6 percent limit in detail. For the full picture of seller help, see our guide to how seller-paid closing costs work in Nevada. And if a builder on a new home is offering the money, our conventional loan site explains how a builder's buydown incentive is set up on new construction in Las Vegas.

Does a 2-1 buydown help you qualify for the loan?

No. Under Fannie Mae and FHA rules, the lender qualifies you at the note rate, so the lower year-one payment does not count.

Fannie Mae's rule is in section B2-1.4-04 of its Selling Guide. It says the lender "must qualify the borrower based on the note rate without consideration of the bought-down rate". HUD's handbook says the same thing for FHA loans. In section II.A.4.a.iii, it tells the lender to "use the Note rate when calculating principal and interest" on a loan with a temporary buydown.

In practice, the lender uses the full payment to figure your debt-to-income ratio, or DTI. DTI is your monthly debts divided by your monthly income before taxes. Our plain guide shows how lenders count your debt-to-income ratio.

So use the calculator's full payment as your test. If your budget works at that number, the buydown is extra breathing room for two years. If it only works at the year-one payment, the buydown cannot fix that.

There is one more rule to know. Both Fannie Mae and HUD say that if the buydown money is not paid for any reason, you still owe the full payment in your note. In addition, Fannie Mae requires your loan documents to show the full payment terms, and the buydown cannot change your note.

What happens to unused buydown money if you sell or refinance?

That depends on your loan type and your buydown agreement. First, here is how much could be left. Say the buyer in our example sells 18 months into the buydown.

Year one used all 12 months, or $5,712. Six months of year two used 6 times $244, or $1,464. Together that is $7,176 used out of $8,640, which leaves $1,464. Check it the other way: six months of year two remain, and 6 times $244 is also $1,464.

• On a loan sold to Fannie Mae, leftover money at payoff should be credited toward the amount needed to pay off the loan. Or it may be returned to you, or to the lender if the lender paid for the buydown, as the buydown agreement says.
• On an FHA loan, HUD bars the escrow agreement from sending leftover money back to whoever provided it when the home is sold or the loan is paid off. It also bars paying it to you in cash, unless your own money set up the account.

So read the buydown agreement before closing, and ask what happens to leftover money at payoff. A refinance pays off the old loan, so the same question applies there too. Our guide on refinancing during a 2-1 buydown walks through that choice.

When can you not use a 2-1 buydown?

You cannot use one on several kinds of loans. Fannie Mae and HUD each name them.

• Investment properties on a Fannie Mae loan. Fannie Mae lists principal residences and second homes as eligible for temporary buydowns, and investor properties as ineligible.
• Cash-out refinances on a Fannie Mae loan. A cash-out refinance is a new loan that is bigger than the old one, so you take the difference in cash. These are also listed as ineligible.
• Any FHA refinance. HUD's handbook says temporary buydowns "are not permitted with refinance transactions," in section II.A.8.d.iii.
• Adjustable-rate loans, with limits. An adjustable-rate mortgage, or ARM, is a loan whose rate can change over time. HUD does not permit temporary buydowns on FHA ARMs, in section II.A.8.f.vi. Fannie Mae allows them only on certain ARM plans.

So for most buyers, a 2-1 buydown is a tool for buying a home you will live in, with a fixed-rate loan.

Is a 2-1 buydown a good idea?

It is a good idea when someone else pays for it and you can already afford the full payment. Use this quick check.

• A 2-1 buydown tends to fit when the seller or builder is paying, you qualify easily at the full payment, and the first two years will be tight for a reason you can name.
• Think twice when you would pay for it yourself, or you are stretching to afford the year-three payment. In that case, money spent on a lower rate for the life of the loan may help longer. Discount points are fees you pay at closing for a lower rate on the whole loan. Our guide covers whether paying discount points for a lower rate pays off, and our temporary vs permanent buydown comparison works the same seller dollars both ways.
• Compare the same dollars two ways if the seller would cut the price instead. A lower price lowers your loan for good, while a buydown lowers only two years of payments. We run that test in a seller-paid buydown vs a price cut.

For the three-year version, see how a 3-2-1 buydown works, month by month. And for every buydown type on one page, our guide to mortgage rate buydowns covers the 2-1, the 3-2-1 and the 1-0.

2-1 buydown calculator: FAQ

Cost and math

Rules and limits

About the publisher

Across Valley West: Government loans add their own rules to a buydown. Our FHA loan site lays out what FHA seller concessions can pay for on a Las Vegas purchase. Our VA loan site covers the VA rules for a seller-paid 2-1 buydown in Las Vegas.

Keep reading

• Mortgage rate buydowns explained
• How a 3-2-1 buydown works
• Discount points and the break-even math
• Seller-paid closing costs
• How a mortgage escrow account works
• Debt-to-income ratio

Sources: Fannie Mae

• Fannie Mae Selling Guide, B2-1.4-04, Temporary Interest Rate Buydowns (08/07/2024). Note-rate qualifying, the 3-point, 1-point-a-year and three-year limits, no dollar cap, the custodial account, eligible and ineligible transactions, and leftover funds at payoff.
• Fannie Mae Selling Guide, B3-4.1-02, Interested Party Contributions (05/07/2025). Who counts as an interested party, the 3, 6 and 9 percent limits figured on the lower of price or appraised value, sales concessions, and the rule that buydowns funded by an interested party count toward the limit.

Sources: HUD and CFPB

• HUD Handbook 4000.1, FHA Single Family Housing Policy Handbook (last revised August 12, 2026). Section II.A.4.a.iii, qualifying at the note rate; II.A.4.d.iii(G), the 6 percent limit, which includes temporary buydowns; II.A.6.a.ix, the buydown escrow; II.A.8.d.iii and II.A.8.f.vi, no temporary buydowns on refinances or ARMs.
• CFPB, What is the difference between a mortgage interest rate and an APR? The APR reflects the interest rate plus points, fees and other charges.

This article is for general information and is not legal, tax or financial advice. Valley West Mortgage is an independent mortgage lender, NMLS #65506, licensed in Nevada. Equal Housing Opportunity. Valley West Mortgage is not affiliated with, or acting on behalf of or at the direction of, Fannie Mae or any government agency, including HUD, the FHA and the VA. This page is not from HUD, the FHA or the VA and was not approved by any of them. FHA loans are insured by the FHA and made by private lenders. Nothing on this page is an offer of credit, a rate quote, a preapproval or a commitment to lend, and loan terms vary by borrower, property and program. All figures are illustrative and not a quote, offer, or commitment to lend.

The temporary vs permanent buydown choice comes down to one question: how long will you keep this loan? Both options spend money at closing to make your payment smaller. They just spend it on different years.

This guide works one Las Vegas example by hand, so you can see where the two lines cross. It also covers the rules that can decide the question for you: qualifying, seller credit limits, refinancing early and taxes.

What is the difference between a temporary and permanent buydown?

The difference is how long the lower payment lasts. A temporary buydown lowers your payment for the first one to three years. A permanent buydown lowers it for the whole life of the loan.

Both are paid for at closing, and either one can be paid by you, the seller or a builder. But they work in very different ways under the hood.

How does a temporary buydown work?

A temporary buydown puts money into a buydown account at closing. That account is a separate fund that pays part of each payment for you during the first years. Meanwhile, your loan itself does not change.

The most common kind is a 2-1 buydown. Your effective rate is 2 percentage points below your note rate (the full rate in your loan contract) in year one. It is 1 point below in year two. From year three on, you pay the full amount. A 3-2-1 stretches the same idea over three years, and a 1-0 covers just one.

Fannie Mae, the company that buys many home loans from lenders, sets the limits in its Selling Guide, section B2-1.4-04. The rate can be bought down by no more than 3 percentage points. It can rise by no more than 1 point a year, and the buydown can last no more than three years. In addition, the money must sit in a custodial bank account, which is kept apart from the lender's own funds.

For the three-year version in detail, see how a 3-2-1 buydown works, month by month.

How does a permanent buydown work?

A permanent buydown means paying discount points at closing for a lower rate. The Consumer Financial Protection Bureau, or CFPB, explains that one point equals 1 percent of your loan amount. Points do not have to be round numbers, either.

The CFPB also says points show up on page 2, in Section A, of your Loan Estimate (the cost summary a lender gives you after you apply) and your Closing Disclosure. By law, points listed there must be tied to a lower interest rate. However, how much each point lowers your rate depends on the lender and the day you lock.

So the first step is always the same. Ask your lender for the rate with zero points and the rate with the points you are considering, on the same day. Then compare the two payments. If you want to test the trade from the other direction too, our conventional loan site has a tool to weigh lender credits against discount points on your own numbers.

Temporary vs permanent buydown: which saves more?

It depends on how long you keep the loan. In the example below, the temporary buydown was ahead for about the first four years. After that, the permanent buydown pulled ahead and kept growing. Every figure here is an assumption chosen for the arithmetic. None of it is a quote, offer or commitment to lend.

Now count what each choice puts back in your pocket. The temporary buydown pays out its $8,184 over 24 months and then stops. The permanent buydown pays $132 a month for as long as you keep the loan.

There is one more piece most comparisons leave out. A lower rate also pays down your balance a little faster. So if you sell or refinance, you owe slightly less with the permanent buydown. The table counts that too.

Check the first row. Two years is 24 months, and 24 times $132 is $3,168. Add about $900 you no longer owe, and the total is about $4,070. That is about half of what the temporary buydown paid you. Now check the five-year row: 60 times $132 is $7,920. Add about $2,260, and the permanent buydown is ahead at about $10,180.

So why does the answer flip? Because the temporary buydown spends all of its money in two years. By contrast, the permanent buydown keeps paying you every month after that.

One honest caveat. This count ignores timing. The temporary buydown puts its money in your hands when a new owner often has the most costs. If that early help keeps you off a credit card, it can be worth more than the totals show.

How do you find your break-even month?

Divide the cost of the points by the monthly savings. The answer is how many months it takes the permanent buydown to pay back its cost in lower payments alone.

In the example, that is $8,184 divided by $132, or 62 months. That is five years and two months. Check it the other way: 62 times $132 is $8,184.

However, that simple count leaves out the smaller balance. Once you add it, the crossover in this example comes sooner, at about 49 months, or four years and one month. That is the point where the permanent buydown's payments saved plus its lower balance first top $8,184.

Here is the rule of thumb that falls out of this. If you are fairly sure you will keep the loan past your break-even month, points tend to win. If you might sell or refinance before then, the temporary buydown tends to win. For a deeper look at the points side alone, see our guide to whether paying points to lower your rate pays off.

Which buydown helps you qualify for the loan?

Only the permanent buydown, under Fannie Mae and FHA rules. That is because points lower the note rate itself, so the full payment the lender uses goes down.

A temporary buydown does not count. Fannie Mae's section B2-1.4-04 is clear on this. The lender "must qualify the borrower based on the note rate without consideration of the bought-down rate." HUD's FHA handbook, section II.A.4.a.iii, says the same thing for FHA loans: the lender must use the note rate.

Here is what that means in the example. With points, the full payment is $132 a month lower. Lenders compare that payment, plus your other debts, with your income before taxes. That share is your debt-to-income ratio, or DTI. For a buyer earning $8,000 a month, $132 is 132 divided by 8,000, or 1.65 percentage points of DTI. That can matter if you are close to a lender's limit.

So if qualifying is tight, the temporary buydown cannot rescue the file. The permanent one sometimes can.

Do seller credit limits treat them the same?

Yes. Seller money for either kind counts as an interested party contribution (money from someone with a stake in the sale, such as a seller, builder or agent).

Fannie Mae covers this in section B3-4.1-02. If "a temporary or permanent interest rate buydown" is paid for by an interested party, "the cost of that subsidy must be included in the IPC calculation." Likewise, HUD's handbook, section II.A.4.d.iii(G), says the FHA 6 percent limit includes interested party payment "for permanent and temporary interest rate buydowns."

Check the math: $400,000 times 0.03 is $12,000, times 0.06 is $24,000, times 0.09 is $36,000, and times 0.02 is $8,000. In the example, the $8,184 fits under even the 3 percent limit.

There is one difference worth knowing. Fannie Mae does not allow a temporary buydown on an investment property, only on a home you live in or a second home. Points are not limited that way. So for a rental, the permanent buydown is the one on the table. On top of that, the 2 percent limit means seller money only goes so far.

Want the bigger picture on seller money? See our guide to a seller-paid buydown vs a lower price.

What if you sell or refinance early?

Then the two choices end very differently. With a temporary buydown, Fannie Mae's rules say leftover money may be credited toward your payoff, or returned to you or the lender, as the buydown agreement says. So read that agreement before closing.

With points, the money is already spent. If you refinance in year two, you have collected only part of what the points cost. In the example, two years of savings came to about $4,070 against $8,184 in points.

That is why the refinance question matters so much here. Nobody can promise what rates will do. But if you would refinance the moment rates fell, count that as a short hold, and short holds favor the temporary buydown. For what a refinance does to a 2-1 buydown in detail, see what happens if you refinance during a 2-1 buydown.

How are points handled at tax time?

Points get special rules. IRS Topic 504 explains that points are a form of prepaid interest. If you itemize, points paid to buy your main home may be deductible (subtracted from your taxable income) in the year you pay them, when every IRS test is met.

Seller-paid points have a twist. The IRS treats points the seller pays on your loan as if you paid them yourself. In return, you must subtract that amount from your basis, which is your cost in the home for tax purposes.

Taxes are personal, so ask a tax professional how either choice fits your return. This page is not tax advice. The IRS topic cited here covers points. It does not address a temporary buydown account, so ask a tax professional about that too.

When does each kind of buydown make sense?

When you can name your timeline, the choice gets simple. Use this quick check.

• A temporary buydown tends to fit when you expect to sell or refinance within a few years, you qualify easily at the full payment, and the first two years will be tight for a reason you can name.
• A permanent buydown tends to fit when you plan to keep the loan past your break-even month, you need a lower full payment to qualify, or the home is an investment property.
• Run both if you are unsure how long you will keep the loan. The break-even month tells you which side of the line you are on.

New homes are a common place to face this choice. Builders sometimes offer incentive money, and some let you choose how it is spent. If yours does, ask for both versions in writing before you pick.

Then follow these steps:

1. Qualify at the full payment first. Ask your lender to run your numbers at the note rate before you count on any buydown.
2. Get both prices on the same day. Ask for the cost of a 2-1 buydown and the payment drop from the same dollars in points.
3. Find your break-even month. Divide the cost of the points by the monthly savings.
4. Check the seller credit limit. Add every seller dollar that counts toward your loan's limit and compare the total with that limit.
5. Read the Closing Disclosure. Points appear on page 2, Section A. Seller money for a buydown should show either in the Seller-Paid column on page 2 or as Seller Credits in Section L, so confirm every seller dollar appears.

Want all three temporary structures side by side? Our mortgage rate buydown guide covers the 2-1, the 3-2-1 and the 1-0.

Temporary vs permanent buydown: FAQ

Which one saves more

Rules and limits

About the publisher

Across Valley West: Government loans add their own rules to this choice. Our FHA loan site explains how FHA's 6 percent cap on seller help works in Las Vegas, and our VA loan site walks through a seller-funded temporary buydown on a VA home loan.

Keep reading

• Mortgage rate buydowns explained
• Discount points and the break-even math
• Seller-paid buydown vs price reduction
• 3-2-1 buydown calculator
• Can you refinance a 2-1 buydown?
• Debt-to-income ratio

Sources: Fannie Mae and HUD

• Fannie Mae Selling Guide, B2-1.4-04, Temporary Interest Rate Buydowns (08/07/2024). Note-rate qualifying, the 3-point, 1-point-a-year and three-year limits, the custodial account, eligible property types and leftover funds at payoff.
• Fannie Mae Selling Guide, B3-4.1-02, Interested Party Contributions (05/07/2025). The 3, 6, 9 and 2 percent limits and the rule that temporary and permanent buydowns funded by an interested party count toward them.
• HUD Handbook 4000.1, FHA Single Family Housing Policy Handbook (last revised August 12, 2026). Section II.A.4.d.iii(G), the 6 percent limit, which includes permanent and temporary buydowns; section II.A.4.a.iii, qualifying at the note rate.

Sources: CFPB and IRS

• CFPB, What are discount points and lender credits and how do they work? One point equals 1 percent of the loan amount; points appear on page 2, Section A, of the Loan Estimate and Closing Disclosure.
• IRS Topic 504, Home mortgage points (reviewed or updated September 24, 2026). Points as prepaid interest, the tests for deducting them, and the basis rule for seller-paid points.

This article is for general information and is not legal, tax or financial advice. Valley West Mortgage is an independent mortgage lender, NMLS #65506, licensed in Nevada. Equal Housing Opportunity. Valley West Mortgage is not affiliated with, or acting on behalf of or at the direction of, Fannie Mae or any government agency, including HUD, the FHA, the VA and the IRS. This page is not from HUD, the FHA or the VA and was not approved by any of them. FHA loans are insured by the FHA and made by private lenders. Nothing on this page is an offer of credit, a rate quote, a preapproval or a commitment to lend, and loan terms vary by borrower, property and program. All figures are illustrative and not a quote, offer, or commitment to lend.

When a seller is willing to give up money, the seller-paid buydown vs price reduction question decides where that money goes. It can lower your payment for a couple of years, or it can lower the price for good.

Both sound like savings, and both are. But they save you money at different times and in different ways. This guide works one Las Vegas example by hand, shows when each choice wins, and covers the loan rules that can tip the answer.

What is a seller-paid buydown?

A seller-paid buydown is money the seller pays at closing to lower your monthly payment for a set time. The money goes into a buydown account, which is a separate fund that covers part of each payment for you. Your loan itself does not change. You still owe the full payment written in your loan papers once the account runs out.

A common kind is a 2-1 buydown. Your payment is lowest in year one, a bit higher in year two, and at the full amount from year three on. For a look at the three-year version, see how a 3-2-1 buydown works, month by month.

Fannie Mae, the company that buys many home loans from lenders, sets rules for these accounts. Its Selling Guide, section B2-1.4-04, says the money must sit in a custodial bank account, which is an account kept apart from the lender's own money. It also says your only interest in that money is to have it applied to your payments as they come due.

What does a price reduction change?

A price reduction lowers the price on your purchase contract. That one change ripples through the whole deal, and it lasts for the life of the loan.

• You borrow less. If you keep the same cash down payment, every dollar cut from the price comes off your loan.
• Your full payment drops for good. A smaller loan means a smaller payment every month, not just for two years.
• You pay less interest. Interest is charged on what you owe, so a smaller loan costs less to carry.
• It can help you qualify. A lower full payment improves your debt-to-income ratio, or DTI, which is your monthly debts divided by your monthly income before taxes.

If your down payment is set as a share of the price instead, part of the cut lowers the cash you bring to closing. The rest still comes off the loan.

Seller-paid buydown vs price reduction: which saves more?

In the example below, the price cut saves more in total when the seller's dollars are the same. Here is the math, done by hand so you can copy it onto your own numbers. Every figure is an assumption chosen for the arithmetic. None of it is a quote, offer, or commitment to lend.

Now count what each choice puts in your pocket. For the buydown, that is $8,640 of payment help plus $1,360 at closing, or $10,000. For the price cut, it is the $63 a month you save plus the smaller amount you still owe if you sell or refinance. That second number matters most, and it is the part most comparisons leave out.

Check the first row. Two years is 24 months, and 24 times $63 is $1,512. Add the $9,770 you no longer owe, and the total is $11,282, or about $11,280. The five-year row is 60 times $63, or $3,780, plus $9,360. The ten-year row is 120 times $63, or $7,560, plus $8,480.

So why does the price cut come out ahead even at two years in this example? Because the $10,000 you never borrowed also never collects interest. The buydown hands you the seller's $10,000 and stops there. The price cut hands you the same $10,000, plus the interest you would have paid on it.

One honest caveat. This simple count ignores timing. The buydown puts its money in your hands in the first two years, when new owners often have the most costs. If that early cash keeps you off a credit card, it can be worth more than the totals show.

What if the seller offers more as a credit than as a cut?

Then the answer depends on how long you keep the loan. Some sellers will give more as a credit than as a price cut, so this is the case to run before you sign.

Keep the same home. Say the seller offers a $10,000 credit or a $7,000 price cut. Assume the smaller cut lowers the principal and interest part of each monthly payment by $44, before taxes and insurance. Here is how the two compare over time:

In this example, the credit is ahead for about the first seven years. After that, the smaller cut pulls ahead. Check the seven-year row: 84 months times $44 is $3,696, plus $6,330 is $10,026. That is just past $10,000.

So here is a simple rule. If you expect to move or refinance within a few years, a bigger credit can beat a smaller cut. If you plan to stay a long time, the cut tends to win.

How much does a 2-1 buydown cost the seller?

It costs whatever your payment help adds up to over the two years. There is no set fee. The account has to hold enough to cover the gap between your lower payments and your full payment, month by month.

Here is the formula. Take the monthly gap in year one and multiply it by 12. Do the same for year two. Add the two numbers. In the example, that was 12 times $476 plus 12 times $244, or $8,640.

The gaps depend on your loan size and your rate, so the cost moves with them. A bigger loan or a higher rate means a bigger account. Fannie Mae's section B2-1.4-04 also says it "does not place a limit on the total dollar amount" of a buydown. Seller credit limits still apply, as the next section shows. For a full payment schedule on your own numbers, our mortgage calculators include a buydown tool.

How do seller credit limits change the choice?

They can make the choice for you. Money from the seller for a buydown counts as an interested party contribution (a payment from someone with a stake in the sale). The seller, a builder and an agent all count. A price cut is not a contribution at all, so no cap applies to it.

Fannie Mae's section B3-4.1-02 says the cost of a seller-funded buydown "must be included" in that calculation. Here are the limits that apply:

Check the math: $400,000 times 0.03 is $12,000, times 0.06 is $24,000, times 0.09 is $36,000, and times 0.02 is $8,000. In the main example, the $10,000 credit fits under even the 3 percent limit.

Two more rules matter. First, Fannie Mae says seller credits must be "equal to or less than the sum of the borrower's closing costs". Second, money over the limit is a sales concession, and it "must be deducted from the property's sales price". In plain terms, extra credit does not help you, and it can shrink the value the lender uses for your loan. FHA has a similar rule: seller money over 6 percent, or over your actual closing costs, is subtracted from the price before the lender sizes your loan. A price cut avoids both problems.

Note one more limit. Fannie Mae does not allow a temporary buydown on an investment property, only on a home you live in or a second home. So for a rental, a price cut or a credit toward closing costs are the usual choices.

For how seller credits work across loan programs, see our guide to who pays closing costs in Nevada.

What if the home appraises low?

Then a price cut can save the deal, and a buydown cannot. The appraisal is an independent estimate of the home's value, ordered for the lender.

Fannie Mae's section B2-1.2-01 says that on a purchase, the property value is "the lower of the sales price or the current appraised value". So the lender uses whichever number is smaller.

Say the $400,000 home appraises at $392,000. With the buydown, the lender values the home at $392,000. The $400,000 minus $392,000, or $8,000, gap usually has to come from your own cash or a new deal with the seller. With a $10,000 price cut to $390,000, the price is already under the appraisal. The gap is gone.

Also, a buydown account cannot shrink the loan for this test. Fannie Mae's section B2-1.4-04 says buydown funds "cannot be used to reduce the mortgage amount" in the loan-to-value ratio. That ratio is the loan amount divided by the home's value.

Does a lower price lower your property tax in Nevada?

Not by itself. Many national articles say a price cut lowers your property taxes. That is true in places where the tax is based on the sale price. Nevada works differently.

Under NRS 361.227, the county assessor sets a home's taxable value by formula. The land is valued at its full cash value. The building is valued at what it would cost to replace, minus 1.5 percent a year for age. The formula does not use your purchase price directly. Sale prices come in only as a check that taxable value stays at or below market value.

Nevada also limits how fast the tax bill on your main home can rise. NRS 361.4723 sets that limit at 3 percent over the prior year's bill for a single-family home that is the owner's primary residence. So in Clark County, the case for a price cut rests on the smaller loan, not on a smaller tax bill.

When does a seller-paid buydown make more sense?

When early cash matters more than the long-run total. Use this quick check.

• A price cut tends to fit when you need help qualifying, the appraisal could come in low, you plan to keep the loan for years, or the seller credit is near its limit.
• A buydown can fit when you qualify easily at the full payment and the first two years will be tight for a reason you can name. It helps most when the seller will give more as a credit than as a cut.
• Run both if you are unsure how long you will keep the loan. The break-even year tells you which one fits.

Keep the qualifying rule in mind. Fannie Mae's section B2-1.4-04 says the lender "must qualify the borrower based on the note rate" (the full rate in your loan contract). The lower bought-down rate does not count. HUD's FHA handbook says the same thing for FHA loans. So under Fannie Mae and FHA rules, a temporary buydown does not help you get approved. It only helps once you are approved.

New homes are a common place to see this choice. Builders often put their incentive money toward a buydown, and our conventional loan site explains how new-home builder incentives in Las Vegas get turned into a rate buydown.

And if you think you might refinance soon, count that in. A refinance ends the buydown early. Under Fannie Mae's rules, leftover money is credited toward your payoff or returned as the buydown agreement says. A price cut, by contrast, carries its smaller balance into the new loan.

How do you ask the seller for the right one?

1. Qualify at the full payment first. Ask your lender to run your numbers at the note rate before you make an offer.
2. Price both choices in dollars. Get the buydown cost and the monthly drop from a price cut on your own loan.
3. Pick your break-even year. Compare the totals at the year you expect to sell or refinance.
4. Check the seller credit limit. Add up the seller dollars that count toward your loan's limit, such as the buydown and closing cost credits, and compare the total with that limit.
5. Write it into the contract. Name a buydown as a seller credit with a dollar amount, or write the lower price.
6. Read the Closing Disclosure. This is the final form that lists your loan costs, and it should show the seller's credit or the new price.

Want the bigger picture on buydowns? Our mortgage rate buydown guide covers the 2-1, the 3-2-1 and the 1-0 side by side.

Buydown vs price cut: FAQ

Which one saves more

Rules and limits

About the publisher

Across Valley West: The same choice plays out a little differently on government loans. Our FHA loan site has an FHA buyer's look at taking a seller credit or a lower price. Our VA loan site covers the VA version, where seller-paid buydown money can count toward the VA's limit on seller concessions (extra help a seller gives a buyer).

Keep reading

• Mortgage rate buydowns explained
• FHA vs. conventional loans
• How a 3-2-1 buydown works
• Debt-to-income ratio
• Seller-paid closing costs by loan program
• Discount points (fees that buy a lower rate)

Sources: Fannie Mae

• Fannie Mae Selling Guide, B2-1.4-04, Temporary Interest Rate Buydowns (08/07/2024). Note-rate qualifying, the custodial account, the "no limit on total dollar amount" line, the loan-to-value rule for buydown funds, eligible property types and leftover funds at payoff.
• Fannie Mae Selling Guide, B3-4.1-02, Interested Party Contributions (05/07/2025). The 3, 6, 9 and 2 percent limits, the closing cost ceiling, sales concessions (seller money over the limit) and the buydown cost rule.
• Fannie Mae Selling Guide, B2-1.2-01, Loan-to-Value (LTV) Ratios (06/01/2022). On a purchase, value is the lower of the sales price or the appraised value.

Sources: HUD and Nevada law

• HUD Handbook 4000.1, FHA Single Family Housing Policy Handbook (last revised August 12, 2026). Section II.A.4.d.iii(G), the 6 percent limit on interested party contributions, which includes temporary buydowns; section II.A.4.a.iii, qualifying at the note rate.
• Nevada Revised Statutes, chapter 361, Property Tax. NRS 361.227, how taxable value is set, and NRS 361.4723, the 3 percent limit on yearly increases for a primary residence.

This article is for general information and is not legal, tax or financial advice. Valley West Mortgage is an independent mortgage lender, NMLS #65506, licensed in Nevada. Equal Housing Opportunity. Valley West Mortgage is not affiliated with, or acting on behalf of or at the direction of, Fannie Mae, HUD, the FHA, the Department of Veterans Affairs or any other government agency. Nothing on this page is an offer of credit, a rate quote, a preapproval or a commitment to lend, and loan terms vary by borrower, property and program. All figures are illustrative and not a quote, offer, or commitment to lend.

An FHA 2-1 buydown can make the first two years of a new home cheaper, and HUD allows it on a purchase. Sellers and home builders sometimes offer one as an incentive to close a sale.

But FHA runs it by its own rules, and they differ from a conventional loan in ways that change the deal. This guide covers what HUD's handbook says, how the 6 percent seller limit works, and what happens to leftover money if you sell early. It also works a Las Vegas example by hand.

What is an FHA 2-1 buydown?

An FHA 2-1 buydown is a temporary buydown on an FHA loan. A buydown is money paid up front to lower your monthly payment for a set time. With a 2-1 buydown, that time is the first two years.

The name tells you the pattern. Your payment is lowest in year one. It steps up in year two. From year three on, you pay the full payment written in your note, which is the loan contract you sign. Your note rate never changes. The buydown only covers part of each payment for two years.

At closing, the money goes into a buydown account, which is a separate fund that pays part of each payment for you. HUD's handbook calls this a temporary interest rate buydown. For a general look at how buydowns are built, including the three-year version, see how a 3-2-1 buydown works, month by month.

Can you do a 2-1 buydown on an FHA loan?

Yes, when you are buying a home with a fixed-rate FHA loan. HUD Handbook 4000.1 is the rulebook lenders follow on FHA loans. It sets out how a temporary buydown is underwritten, how it is funded and how its account works. Underwriting is the lender's review of whether you can repay.

The same handbook also names two places a temporary buydown is not allowed:

• Refinances. Section II.A.8.d.iii says temporary buydowns "are not permitted with refinance transactions." That covers every FHA refinance, including a streamline refinance, which is a faster FHA-to-FHA refinance with less paperwork.
• Adjustable-rate loans. Section II.A.8.f.vi says temporary buydowns "are not permitted with ARM transactions." An ARM is an adjustable-rate mortgage, a loan whose rate can change over time.

So an FHA 2-1 buydown lives in one place: a purchase with a fixed-rate loan. If you already own the home with an FHA loan, a new temporary buydown is off the table. You can still lower a rate for the life of the loan with discount points, which are fees paid at closing for a lower rate. Our guide to when buying discount points pays off covers that math.

What rate does FHA use to qualify you with a 2-1 buydown?

The note rate, every time. HUD's handbook says the lender "must use the Note rate when calculating principal and interest" on a loan with a temporary buydown. The same line appears in two places. One covers loans approved through FHA's automated system, in section II.A.4.a.iii. The other covers loans a person underwrites by hand, in section II.A.5.d.vii.

In plain terms, the lower year-one payment does not help you qualify. The lender sizes your loan on the full payment you will owe from year three on. That payment goes into your debt-to-income ratio, or DTI. DTI is your monthly debts divided by your monthly income before taxes. Our plain guide to debt-to-income ratios shows how lenders count it.

That rule is a real protection. Year three is the payment you were approved for, so the step-up in year three should not come as a shock to your budget. It also gives you a simple way to decide:

• If your DTI works at the full payment, a buydown is extra savings for the first two years.
• If your DTI works only at the lower year-one payment, a buydown will not get the loan approved. Look at a lower price, a larger down payment or paying off a debt first.

Does a seller-paid buydown count toward FHA's 6 percent limit?

Yes. On an FHA loan, money from the seller for a buydown counts toward a cap. HUD calls this money an interested party contribution, which is a payment from someone with a stake in the sale, such as the seller, a real estate agent, a builder or the lender.

Section II.A.4.d.iii(G) of the handbook says interested parties "may contribute up to 6 percent of the sales price" toward your closing costs. That 6 percent limit also includes money for "permanent and temporary interest rate buydowns." Here is what shares that one 6 percent pool:

The last row needs a word. Premium pricing means the lender gives you a credit in exchange for a higher rate. HUD leaves that credit out of the 6 percent limit, as long as the lender is not also the seller, the agent or the builder. The handbook also bars interested party money from covering your minimum required investment. That is the cash FHA requires you to put into the purchase yourself.

For how seller credits work across FHA, VA and conventional loans, see our guide to who pays closing costs in Nevada.

What does the math look like on a Las Vegas home?

Here is a full example, done by hand so you can copy it onto your own numbers. Every figure is an assumption chosen for the arithmetic. None of it is a quote, and it names no interest rate or payment.

Package A fits with room to spare. Package B looks generous, but it breaks the FHA rule. The next section shows what that $3,000 does to the deal.

What happens if the seller credits go over 6 percent?

The extra is treated as an inducement to purchase. That is HUD's term for seller money beyond what the rules allow. Section II.A.4.d.iii(H) says an inducement causes "a dollar-for-dollar reduction to the purchase price" when the lender figures the home's value for the loan.

In Package B, the $3,000 over the cap comes off the price the lender uses. The lender sizes the loan as if the home cost $400,000 minus $3,000, or $397,000, as long as the appraisal comes in at $397,000 or more. You still pay $400,000 for the home. So the gap has to come from somewhere, and it usually means more cash from you at closing.

There are two clean ways to fix an offer like Package B:

• Trim the package. Drop $3,000 of the discount points, and the total lands at exactly $24,000.
• Trade credits for price. Ask for a lower price and fewer credits. A lower price also lowers the cap itself. At $397,000, the cap is $397,000 times 0.06, or $23,820. So run the math again on the new price.

The handbook also says any seller money above your actual closing costs, prepaid items and points is treated as an inducement too. So a credit that sounds large on paper only helps up to what you actually owe at closing.

What happens to unused buydown money if you sell or refinance?

It cannot go back to whoever paid for it. The handbook covers this in section II.A.6.a.ix. It requires an escrow for the buydown, which is an account held by a third party that pays out only under set rules.

The escrow agreement must not do two things:

• Send leftover money back to the provider if the home is sold or the loan is paid off in full. So a seller or builder who funded it does not get it back.
• Pay leftover money to you in cash, unless your own money was used to set up the account.

Here is how the leftover works in our example. The buyer sells after 14 payments. Year one used its full $5,400. Two of year two's twelve months used one-sixth of $2,700, or $450. That is $5,850 used out of $8,100, which leaves $2,250. Check it the other way: ten of twelve months remain, and ten-twelfths of $2,700 is also $2,250.

HUD's section does not say where that $2,250 goes, only where it cannot go. Your buydown agreement sets the rest, so read it before closing. Ask whether leftover money is credited toward your loan balance when the loan is paid off.

One more rule sits in the same section. The escrow agent pays the buydown money to the lender or the company that collects your payments. If those payments stop for any reason, you owe the full payment in your note.

A refinance during the buydown years raises the same question, since paying off the old loan ends the buydown. Count any leftover money you would give up before you compare the savings.

A Nevada note on words. When people here say "escrow," they usually mean the escrow or title company that closes the sale. Nevada licenses independent escrow agencies under chapter 645A of the Nevada Revised Statutes, and title agents and escrow officers under chapter 692A. A buydown escrow is a different thing. It is the account that pays part of your monthly payment for two years after closing.

FHA or conventional: which handles a buydown better?

Both allow a temporary buydown on a purchase, and both qualify you at the note rate. Fannie Mae's Selling Guide, section B2-1.4-04, says the lender "must qualify the borrower based on the note rate." The big difference is how much the seller can pay when your down payment is small.

The seller limit is where FHA can differ most for a buyer with a small down payment. Fannie Mae's section B3-4.1-02 ties its seller limit to the size of the loan compared with the home's value. On a home you will live in, the smallest down payments get the lowest limit, 3 percent. FHA allows 6 percent no matter how much you put down. On the $400,000 example, FHA's 6 percent is $24,000. A 3 percent limit would be $12,000.

A cash-out refinance is one where you borrow more than you owe and take the difference in cash. For the full comparison beyond buydowns, including mortgage insurance, see our guide to FHA vs. conventional loans.

How do you set up an FHA 2-1 buydown in a purchase contract?

1. Qualify at the full payment first. Ask your lender to run your numbers at the note rate before you write an offer. A buydown will not change that answer.
2. Write the buydown into the contract. Name it as a seller or builder credit and state the dollar amount for the buydown account.
3. Add up every seller dollar. Put the buydown, closing costs, prepaid items and points in one list, and compare the total with 6 percent of the price.
4. Keep the credits at or under your real costs. Seller money above your actual closing costs, prepaids and points is treated as an inducement.
5. Read the buydown agreement before closing. Check who holds the account, when it pays and what happens to any leftover if you sell or pay off early.
6. Check the Closing Disclosure. HUD requires the lender to document seller money on the sales contract and the Closing Disclosure, the final form that lists your loan costs.

Want the bigger picture on buydowns, including how they compare with a price cut? Our mortgage rate buydown guide covers the 2-1 and 3-2-1 side by side.

FHA 2-1 buydown: FAQ

The rules

Paying for it

About the publisher

Across Valley West: The 6 percent limit covers more than a buydown, so it helps to see every seller credit in one place. Our FHA loan site keeps a Las Vegas walk-through of what an FHA seller can pay for, with the items that fit under the cap.

Keep reading

• Mortgage rate buydowns explained
• How a 3-2-1 buydown works
• Seller-paid closing costs by loan program
• FHA vs. conventional loans
• Mortgage discount points
• Debt-to-income ratio

Sources: HUD and FHA

• HUD Handbook 4000.1, FHA Single Family Housing Policy Handbook (last revised August 12, 2026). Sections II.A.4.a.iii(A)(1)(c) and II.A.5.d.vii(B)(3), qualifying at the note rate; II.A.4.d.iii(G) and (H), the 6 percent limit and inducements to purchase; II.A.6.a.ix, the buydown escrow; II.A.8.d.iii, no temporary buydown on refinances; II.A.8.f.vi, no temporary buydown on ARMs.
• HUD, SFH Handbook 4000.1 page. Where HUD posts the current edition of the handbook.

Sources: Fannie Mae and Nevada law

• Fannie Mae Selling Guide, B2-1.4-04, Temporary Interest Rate Buydowns (08/07/2024). Note-rate qualifying, eligible transactions and the treatment of buydown funds.
• Fannie Mae Selling Guide, B3-4.1-02, Interested Party Contributions (05/07/2025). The 3, 6 and 9 percent seller limits by loan-to-value.
• Nevada Revised Statutes, chapter 645A, Escrow Agencies and Agents. How Nevada licenses independent escrow agencies, and the exemption in NRS 645A.015 for those licensed under chapter 692A.
• Nevada Revised Statutes, chapter 692A, Title Insurance. How Nevada licenses title agents and escrow officers.

This article is for general information and is not legal, tax or financial advice. Valley West Mortgage is an independent mortgage lender, NMLS #65506, licensed in Nevada. Equal Housing Opportunity. Valley West Mortgage is not affiliated with, or acting on behalf of or at the direction of, HUD, the FHA, Fannie Mae or any other government agency. Nothing on this page is an offer of credit, a rate quote, a preapproval or a commitment to lend, and loan terms vary by borrower, property and program. All figures are illustrative and not a quote, offer, or commitment to lend.