Yes. An FHA loan can carry a 2-1 buydown (money paid up front to lower your first two years of payments) on a home purchase, and HUD sets four rules for it.
Quick answer: An FHA 2-1 buydown is money paid up front, by a seller, builder or other party, that lowers your payment for the first two years of a fixed-rate FHA purchase loan. First, you must qualify at the full payment in your loan papers. Second, seller or builder money for it counts toward FHA's limit of 6 percent of the sales price. Third, the money sits in a separate account with strict rules. Fourth, FHA bars temporary buydowns on refinances and adjustable-rate loans.
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.
Key takeaways
- Yes, on a purchase. An FHA loan can carry a 2-1 buydown when you buy a home with a fixed-rate loan.
- You qualify at the full payment. HUD tells lenders to use the note rate, which is the rate written in your loan papers, not the lower starting rate.
- It counts toward the 6 percent limit. Seller or builder money for a buydown sits inside FHA's cap of 6 percent of the sales price, along with closing costs and discount points (fees paid for a lower rate).
- Leftover money has rules. If you sell or pay off the loan early, unused buydown money cannot go back to the seller or builder.
- No refinance, no adjustable rate. HUD does not allow a temporary buydown on an FHA refinance or on an FHA adjustable-rate mortgage.
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.
The one idea to hold onto. An FHA buydown lowers what you pay for two years. It does not lower what the lender needs you to afford. Those are two different numbers, and HUD only lets the lender look at the second one.
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:
| Item paid by the seller or builder | Inside the 6 percent? |
|---|---|
| Origination fees and other closing costs | Yes |
| Prepaid items, such as the first year of insurance | Yes |
| Discount points | Yes |
| A temporary buydown, such as a 2-1 | Yes |
| The upfront mortgage insurance premium (UFMIP, the one-time FHA insurance charge) | Yes |
| Real estate agent commissions the seller pays by local custom or law | No |
| A lender credit from premium pricing, when the lender is not also the seller, agent or builder | No |
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.
The setup, illustrative only. A buyer in Henderson agrees to buy a home for $400,000 with an FHA loan. The seller offers to pay for a 2-1 buydown and part of the closing costs.
The cap. FHA's limit is 6 percent of the sales price. That is $400,000 times 0.06, or $24,000.
The buydown account. Assume the account must cover $5,400 of payments in year one and $2,700 in year two. $5,400 plus $2,700 is $8,100, so the seller deposits $8,100.
The closing costs. The seller also pays $9,500 of the buyer's closing costs and prepaid items.
The total. $8,100 plus $9,500 is $17,600. That is under the $24,000 cap, with $24,000 minus $17,600, or $6,400, of room left.
| Seller package | Buydown | Closing costs and prepaids | Discount points | Total | Against the cap |
|---|---|---|---|---|---|
| Package A | $8,100 | $9,500 | $0 | $17,600 | $6,400 under |
| Package B | $8,100 | $12,400 | $6,500 | $27,000 | $3,000 over |
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.
Is a seller or builder offering you a buydown? Get the 6 percent math checked first.
Send the price, the seller's offer and the closing cost estimate. You get the buydown, the credits and the cap added up using HUD's handbook rules.
Current as of September 30, 2026.
Get your fast quoteWhat 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.
| Rule | FHA | Fannie Mae conventional |
|---|---|---|
| Rate used to qualify you | Note rate | Note rate |
| Seller money limit, home you live in | 6 percent of the sales price | 3, 6 or 9 percent, based on how much you borrow against the value |
| Temporary buydown on a refinance | Not allowed | Not allowed on a cash-out refinance (one that pays you cash) |
| Temporary buydown on an adjustable-rate loan | Not allowed | Allowed only on certain ARM plans |
| Leftover money at payoff | Cannot go back to the seller or builder | Credited toward the payoff, or returned to you or a lender that funded it if the agreement allows |
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?
- 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.
- Write the buydown into the contract. Name it as a seller or builder credit and state the dollar amount for the buydown account.
- 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.
- Keep the credits at or under your real costs. Seller money above your actual closing costs, prepaids and points is treated as an inducement.
- 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.
- 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.
The Valley West take. A 2-1 buydown on an FHA purchase can lower what you pay in the first two years. Seller money can also go to a price cut or to closing costs, and a seller may build the cost of a buydown into the price, so compare the options before you sign. The catch is that it has to share one 6 percent pool with your closing costs. So add up the whole seller package before you sign, qualify at the full payment, and read the buydown agreement. Doing that helps you avoid a surprise at closing, though the appraisal and the lender's final review can still change the numbers.
FHA 2-1 buydown: FAQ
The rules
Can you do a 2-1 buydown on an FHA loan?
Yes, on a home purchase with a fixed-rate FHA loan. HUD Handbook 4000.1 allows temporary buydowns on FHA purchases. It does not allow them on FHA refinances or on FHA adjustable-rate mortgages.
Does FHA qualify you at the bought-down rate?
No. HUD tells lenders to use the note rate, which is the rate in your loan papers, when figuring principal and interest on a loan with a temporary buydown. The lower year-one payment does not help you qualify.
Can you get a 2-1 buydown on an FHA refinance?
No. HUD Handbook 4000.1, section II.A.8.d.iii, says temporary interest rate buydowns are not permitted with refinance transactions. That covers every FHA refinance.
Paying for it
Does a seller-paid buydown count toward FHA's 6 percent limit?
Yes. Seller, builder or agent money for a temporary buydown counts toward the limit of 6 percent of the sales price. It shares that limit with closing costs, prepaid items, discount points and any upfront mortgage insurance the seller pays.
What happens if seller credits go over 6 percent on an FHA loan?
The amount over 6 percent is treated as an inducement to purchase. The lender takes it off the price, dollar for dollar, when it figures the value used for your loan. That usually means you bring more cash to closing.
What happens to unused FHA buydown money if I sell early?
It cannot go back to the seller or builder who paid for it. It also cannot be paid to you in cash, unless your own money set up the account. Your buydown agreement says where it goes, so ask whether it is credited toward your loan payoff.
Article history
September 30, 2026. First published. HUD Handbook 4000.1 was read on HUD's site that day, in the edition marked last revised August 12, 2026. The sections quoted are II.A.4.a.iii, II.A.4.d.iii(G) and (H), II.A.5.d.vii, II.A.6.a.ix, II.A.8.d.iii and II.A.8.f.vi.
The same buydown lines were compared with the edition issued November 26, 2025, and they match. Fannie Mae Selling Guide sections B2-1.4-04 and B3-4.1-02 were read on Fannie Mae's site that day. NRS chapters 645A and 692A were read on the Nevada Legislature's site.
Every dollar figure on the page was worked by hand: the $24,000 cap, the $8,100 account, the $17,600 and $27,000 packages, the $397,000 figure, the $23,820 cap and the $2,250 leftover.
- Next scheduled review: January 15, 2027. The FHA refinance and underwriting sections carry November 10, 2026 dates in the handbook and are checked again then.
About the publisher
Find out whether a buydown fits your FHA purchase
One conversation covers three things. First, whether you qualify at the full payment. Second, how the seller's offer adds up against the 6 percent limit. Third, what the buydown agreement should say before you sign.
Start your fast quoteAcross 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.
Verification note
Last updated: September 30, 2026. Every source listed above was read live on September 30, 2026. Every dollar figure was recomputed by hand.
What this page refuses to do
It quotes no interest rate, no annual percentage rate, no loan amount, no down payment and no payment on the loan. The price, the buydown account, the closing costs and the points in the example are assumptions chosen for the arithmetic, not quotes.
It names no lender other than our own. It is not legal or tax advice. Your note, your purchase contract and your buydown agreement control.
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.
