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A temporary rate buydown is a financing structure that allows a borrower to have reduced monthly payments for the first one to three years of a new mortgage. The rate reduction is temporary and funded through a seller credit, lender credit, or a combination (hybrid) at closing.

Key Program Highlights

• Borrowers qualify based on the full note rate.
• Seller concessions or lender credits may fund the buydown account (along with other allowable closing costs).
• Eligible loan types:
  • Conventional — primary and second homes
  • FHA and VA — primary residences only
• Available structures: 1-year, 2-year, or 3-year temporary buydown options.
  Example — 2–1 Temporary Buydown

(Illustrative example only — not a rate quote or offer to lend.)

Assume a purchase price of $700,000 and a loan amount of $600,000 with a note rate of 6.50%.

• Year 1: Effective payment calculated at 4.50% (2% below note rate)
• Year 2: Effective payment calculated at 5.50% (1% below note rate)
• Year 3 and beyond: Payment based on the 6.50% note rate

Example:  Purchase price is $700,000 , Loan amount is $600,000, Note Rate/Interest Rate is 6.5% 

In this scenario, approximately $14,338 in seller-paid buydown funds would be needed to cover the payment reduction over the first two years. Actual amounts vary by program, rate, and closing date.

Seller concessions generally may not exceed 3% of the purchase price for conventional loans, subject to program and investor guidelines.

When a Temporary Buydown May Make Sense

• You expect an increase in income in the next few years.
• You are receiving seller concessions and want to apply them to reduce initial payments.
• You prefer to ease into homeownership while budgeting for renovations, furnishings, or other expenses.
• You want to transition from renting to owning more comfortably in the first years.

Guidance for Real Estate Agents

If you are structuring an offer with seller concessions, contact us in advance to estimate the required buydown funds. When drafting an addendum (Form 34), sample language might read:

“Total seller concession of $____ shall be applied toward a temporary rate buydown and allowable closing costs.”

Important Disclosures

Questions about whether a temporary buydown is right for you? Contact us for a personalized review.

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