A seller-paid temporary buydown puts cash into an escrow account at closing to subsidize your mortgage payment during the early years of the loan, then lets the rate climb to the permanent note rate on a schedule you know in advance. It's a tool that can make a listing more attractive without changing the sale price, and it gives you breathing room while you settle into the property.
How a 2-1 buydown works
In a 2-1 structure, your effective interest rate starts two percentage points below the note rate in year one, one point below in year two, then moves to the full note rate for the remaining term. If your note rate is 7 percent, you pay as though it were 5 percent in year one and 6 percent in year two. The seller deposits a lump sum at closing—calculated as the difference between what you actually pay and what the full payment would be—into a custodial account. Your servicer draws from that account each month to cover the gap. These figures are illustrative; rates and products are subject to change and this is not a commitment to lend.
How a 1-0 buydown works
A 1-0 buydown subsidizes only the first year, dropping the effective rate by one percentage point, then steps immediately to the note rate in year two. The escrow deposit is smaller because you're buying down fewer months. This structure works well when the seller wants to offer help but prefers a lower concession, or when you're confident your income will absorb the jump after twelve months.
What you see on the Closing Disclosure
The buydown appears as a seller credit on page two of your Closing Disclosure, typically labeled as a interest-rate subsidy or temporary buydown. The funds move into a custodial account managed by your servicer, not to you directly. Your Loan Estimate and Closing Disclosure will show the note rate, the subsidized rate for each step, and the corresponding payment amounts so you can budget for the increases. The credit counts against the seller's net proceeds, so it has real cost even though the purchase price stays unchanged.
Why sellers offer it
A temporary buydown can differentiate a property in a slower market without triggering a new appraisal or leaving money on the table through a price cut. Buyers get immediate payment relief, and sellers preserve their net through the higher contract price. The trade-off is clear: you must qualify at the note rate, and you need a plan for the step-up—whether that's income growth, refinancing when rates drop, or simply budgeting the difference.
The Alliance take
Temporary buydowns are financing mechanics, not magic. They work when you understand the step schedule and can handle the full payment by year two or three. If you're evaluating a property where the seller offers this structure, model each year's payment and confirm the subsidy amount on your Closing Disclosure before you sign. Ready to explore how a buydown fits your scenario? Start an application and we'll walk through the numbers together.