Feeling rate shock as you shop Chandler homes? You are not alone, and you have options. One simple tool, the 2-1 buydown, can lower your mortgage payment in the first two years so you can settle in with less stress. In this guide, you will learn how a 2-1 buydown works, what it costs, who typically pays on new builds, and when it makes sense compared with paying points. Let’s dive in.
What a 2-1 buydown means
A 2-1 buydown is a temporary interest rate reduction funded up front so your first two years of payments are lower.
- Year 1 payment uses the note rate minus 2 percentage points.
- Year 2 payment uses the note rate minus 1 percentage point.
- Year 3 and beyond use the full note rate.
The buydown funds are deposited at closing into an escrow or subsidy account. The lender then applies the subsidy each month so you pay the reduced amount during the first two years.
Who typically pays in Chandler new builds
In the Phoenix metro, including Chandler, builders often use rate buydowns as part of incentive packages when the market shifts or rates are high. The most common payers are:
- Builder or seller. This is most common on new construction and can be paired with closing cost help or upgrades.
- Buyer. You can fund a temporary buydown yourself, though it is less common than seller- or builder-paid versions.
- Lender. Some lenders offer credits that help fund a buydown as a marketing incentive.
If a builder is offering a 2-1 buydown, confirm the preferred lender requirements, how the credit will be shown on your Closing Disclosure, and whether it counts toward seller-contribution caps for your loan program.
What to confirm with your lender
Program and underwriting rules vary. Before you commit, ask your loan officer to clarify:
- Eligibility. Conventional, FHA, and VA loans can allow temporary buydowns, but documentation and seller-contribution caps differ by program and investor.
- Qualification. Many lenders qualify you at the full note rate to ensure you can afford the payment when the buydown ends. Some allow qualifying at a reduced rate if funds are irrevocably committed.
- Documentation. Make sure the buydown funding is in writing and appears correctly on the Closing Disclosure for RESPA compliance.
- Appraisal. A buydown does not change appraised value, but if used instead of a price reduction, your agent should keep records of all incentives.
- Taxes. Deductibility rules can be complex. Ask a tax professional who, if anyone, can deduct any mortgage-related items.
Example savings for Chandler price tiers
Below are illustrative scenarios using the same assumptions so you can see how a 2-1 buydown behaves. Actual rates and offers will vary. Assumptions: 30-year fixed, permanent note rate 6.50 percent, Year 1 at 4.50 percent, Year 2 at 5.50 percent, principal and interest only.
Entry tier example
Assumptions: $400,000 price, 10 percent down, $360,000 loan.
- Payment at 6.50 percent: about $2,276.
- Payment at 5.50 percent: about $2,047.
- Payment at 4.50 percent: about $1,830.
- Year 1 savings: $446 per month, about $5,352 total.
- Year 2 savings: $229 per month, about $2,748 total.
- Approximate two-year subsidy: about $8,100, which is roughly 2.25 percent of the loan.
Mid tier example
Assumptions: $600,000 price, 20 percent down, $480,000 loan.
- Payment at 6.50 percent: about $3,035.
- Payment at 5.50 percent: about $2,729.
- Payment at 4.50 percent: about $2,439.
- Year 1 savings: $596 per month, about $7,152 total.
- Year 2 savings: $306 per month, about $3,672 total.
- Approximate two-year subsidy: about $10,824, which is roughly 2.25 percent of the loan.
New-build incentive scenario
If a builder funds the buydown, they deposit roughly the two-year savings into an escrow account. You enjoy lower payments for 24 months with no extra monthly outflow. If you plan to sell or refinance within two years, this can be especially attractive.
What a 2-1 buydown costs
The cost to fund a 2-1 buydown is generally similar to the total of the first two years of payment reductions. In many common cases, this equals about 2 to 2.5 percent of the loan amount. If a seller or builder pays, it is treated as a concession and must fit within program caps.
2-1 buydown vs paying points
A temporary buydown provides front-loaded relief. Paying points for a permanent rate reduction delivers smaller monthly savings that last for the life of the loan.
- If the same up-front cost, around 2.25 percent of the loan, could buy a permanent reduction, the break-even often falls around 5 to 8 years. This depends on current point pricing and your rate quote.
- If you expect to stay long term, a permanent buydown can be the better financial choice.
- If you plan to sell or refinance within a few years, a 2-1 buydown may fit better because it lowers payments when you need it most.
Pros and cons at a glance
Pros
- Immediate payment relief in years 1 and 2, helpful during moving and furnishing.
- Frequently funded by sellers or builders, which can reduce your cash outlay.
- Works well if you anticipate rising income or plan to refinance or sell within two years.
- Can pair with other incentives like closing cost help or upgrades.
Cons
- Payment steps up in year 3 to the full note rate.
- If you qualify only at the note rate, the buydown does not change your lender’s qualification standard.
- If you pay the cost yourself, points for a permanent reduction might be better if you will own the home longer.
- Requires clear documentation and correct disclosure.
Checklist before you accept a 2-1 buydown
Use this quick list to protect your interests:
- Who is funding the buydown, and is it in writing?
- How will it appear on your Loan Estimate and Closing Disclosure?
- Does your loan program cap seller contributions, and will this count toward that cap?
- Will the lender qualify you at the note rate or the reduced payment?
- Are you giving up other concessions to receive the buydown?
- Who holds the buydown funds and how will the lender apply them each month?
- Any tax questions you should route to a CPA?
When to choose each option
Choose a 2-1 buydown
- The builder or seller is paying as a sales incentive.
- You want immediate payment relief for a short period.
- You plan to sell or refinance within two years.
Choose permanent points
- You expect to own the home long term and can fund the points.
- Point pricing makes the permanent reduction cost-effective based on your break-even analysis.
Consider alternatives
- Ask about lender credits to offset closing costs in exchange for a slightly higher rate.
- Consider an ARM only if you understand reset risk and expect to refinance.
- Increase your down payment to reduce your loan size and potential PMI exposure.
Local tips for Chandler buyers
- Builders in Chandler and the broader Phoenix metro often pair rate buydowns with other incentives. Compare the dollar value of a buydown versus closing cost credits, price reductions, or design upgrades.
- Many builders prefer their approved lender for incentive eligibility. If you choose your own lender, confirm that the buydown still applies and how it will be documented.
- Coordinate early with your lender and the title company so buydown funds are handled correctly and closing stays on track.
Next steps
If a 2-1 buydown could help you right-size payments while you get settled, the next move is simple. Ask your lender for written scenarios that show permanent payments, the temporary buydown payments, total subsidy cost, and any seller-contribution limits. Then compare that with a permanent points quote and estimate your break-even years. When you want a calm, strategic plan tailored to Chandler and the East Valley, connect with Jennifer Vandall - Main Site to map your path and negotiate the right structure for your goals.
FAQs
What is a 2-1 buydown and how does it work?
- A 2-1 buydown uses up-front funds to reduce your interest rate by 2 percentage points in year 1 and 1 percentage point in year 2, then your loan returns to the full note rate in year 3.
Who usually pays for a 2-1 buydown on Chandler new construction?
- Builders commonly fund the buydown as part of an incentive package, sometimes alongside closing cost help or upgrades, though sellers, buyers, or lenders can also fund it.
How much does a 2-1 buydown cost compared with the loan size?
- In many common cases, the total two-year subsidy equals about 2 to 2.5 percent of the loan amount, based on the payment reductions in years 1 and 2.
Does a 2-1 buydown help me qualify for a mortgage?
- Not always. Many lenders qualify you at the full note rate. Some may allow qualifying at the reduced payment if funds are irrevocably committed and documented. Ask your loan officer.
Is a 2-1 buydown better than paying points for a permanent rate cut?
- It depends on how long you will keep the loan. A 2-1 helps if you need short-term relief or plan to refinance or sell soon. Paying points can win if you will own the home long term.
What should I verify on my Closing Disclosure about the buydown?
- Confirm the funding source, the amount, how it is listed as a seller or builder contribution or lender credit, and that it meets your loan program’s seller-contribution limits.
