Is a mortgage rate buydown the smarter way to make your Somersett payment feel comfortable without overpaying up front? If you are comparing a new build with incentives to a resale with seller credits, it can be hard to see which offer truly saves you money. You want clarity, not jargon. In this guide, you will learn how 2-1, 3-2-1, and permanent buydowns work, how to run the numbers, and what to ask lenders and builders before you sign. Let’s dive in.
What a buydown really is
A mortgage rate buydown is an up-front payment that lowers your interest rate and monthly payment either for a few years or for the life of the loan. The funds can come from you, the seller, or a builder. The goal is simple: reduce your monthly payment to hit a budget target.
Temporary buydowns: 2-1 and 3-2-1
Temporary buydowns lower your rate for the early years, then your payment returns to the full note rate.
- 2-1 buydown: Year 1 is 2 percent below your note rate, Year 2 is 1 percent below, then it resets to the note rate.
- 3-2-1 buydown: Year 1 is 3 percent below your note rate, Year 2 is 2 percent below, Year 3 is 1 percent below, then it resets to the note rate.
These are often funded by builders on new construction when they want to align your payment with a monthly target.
Permanent buydown: paying points
A permanent buydown uses discount points paid at closing to reduce your interest rate for the life of the loan. As a rough example, paying 1 point equals 1 percent of the loan amount and might reduce your rate by about 0.25 percent. The exact impact depends on market pricing and the lender on the day you lock.
How the math pencils out
The following example uses principal and interest only. For your real monthly cost, you will add property taxes, homeowner’s insurance, mortgage insurance if applicable, and Somersett HOA dues.
Example setup:
- Loan amount: $600,000
- Term: 30-year fixed
- Note rate: 6.50 percent
Baseline monthly principal and interest at 6.50 percent:
- $600,000 × $6.32 per $1,000 ≈ $3,792 per month
2-1 buydown example
- Year 1 at 4.50 percent: $600 × $5.07 ≈ $3,042 per month, savings ≈ $750 per month
- Year 2 at 5.50 percent: $600 × $5.68 ≈ $3,408 per month, savings ≈ $384 per month
- Year 3 and beyond at 6.50 percent: $3,792 per month
- Approximate subsidy required: ($750 × 12) + ($384 × 12) = $13,608, which is about 2.27 percent of a $600,000 loan
3-2-1 buydown example
- Year 1 at 3.50 percent: $600 × $4.49 ≈ $2,694 per month, savings ≈ $1,098 per month
- Year 2 at 4.50 percent: ≈ $3,042 per month, savings ≈ $750 per month
- Year 3 at 5.50 percent: ≈ $3,408 per month, savings ≈ $384 per month
- Approximate subsidy required: ($1,098 + $750 + $384) × 12 = $26,784, which is about 4.46 percent of a $600,000 loan
Permanent buydown example
If 2 points are paid at closing, that equals 2 percent of the loan. With typical pricing, that could reduce the rate by about 0.50 percent for the life of the loan. The actual rate and savings depend on your lender’s pricing the day you lock.
Which option fits your plan
Choosing a buydown is about time horizon and cash flow.
- If you expect to sell or refinance within 2 to 3 years, a temporary buydown can be efficient because you get bigger early savings without paying for a rate cut you will not use long term.
- If you plan to keep the loan for many years, permanent points or negotiating a lower base price can create lasting monthly savings.
- If you need early payment relief while income grows, a temporary buydown can help bridge that period. Confirm with your lender whether the reduced payment will be used for qualification.
Underwriting and program rules to know
Lenders qualify buyers in different ways with buydowns.
- Some qualify at the full note rate, which means a temporary buydown will not change your qualifying payment.
- Others will qualify using the reduced payment if the buydown funds are documented, escrowed, and program rules are met.
- Seller and builder contributions are capped under each loan program. Conventional, FHA, and VA loans each have limits and documentation rules. Ask your lender how these caps affect your ability to use a buydown or to apply credits to other costs.
- Buydowns affect APR and will appear on your loan disclosures. Ask for a sample Closing Disclosure that shows the buydown line items.
Somersett specifics: new build vs resale
Somersett is a master-planned community in northwest Reno with both new construction and resale options. Builders often use incentives, including rate buydowns, when they have inventory or want to meet monthly or quarterly goals. Resale sellers may offer credits in softer conditions, but builder-paid buydowns are more common on new homes.
When you compare offers, look beyond the base payment. Somersett HOA dues, property taxes, and insurance can shift the true monthly cost. Confirm the exact HOA for the address, ask about any pending assessments, and use the same tax and insurance assumptions for both properties. If a builder incentive requires using a preferred lender, get the lender’s written policy on buydowns and underwriting so you know how you will be qualified.
Questions to ask before you offer
Set expectations early. Ask these in writing so you can compare apples to apples.
Lender questions
- Will you qualify me at the reduced buydown payment or at the full note rate? Please confirm in writing.
- How will the buydown funds be held and applied each month?
- What is today’s pricing for discount points, and how much rate reduction does each point buy?
- How will the buydown change my APR and how will it appear on the Closing Disclosure?
- Are there lender overlays or program restrictions that could affect my eligibility?
- If the buydown is builder or seller funded, does that change my closing costs, prepaids, or reserve requirements?
Builder or seller questions
- Are you offering a temporary buydown, permanent points, or a closing cost credit? Which program is proposed?
- Exactly how much money will you commit to the buydown, and will it be shown as a credit on the Closing Disclosure?
- Is the offer contingent on a preferred lender? If yes, can I see the lender’s written buydown policy?
- Will this buydown use up the full seller concession limit for my loan program?
- Are there timing windows or price reductions available instead of a buydown?
Practical verification
- Request a sample Closing Disclosure with the buydown items.
- Get the lender’s written explanation of the qualification rate and reserve requirements.
- Confirm HOA dues, any assessments, and property tax estimates for the exact address.
Pros and cons at a glance
Pros of temporary buydowns
- Lower early payments that can help you qualify or ease cash flow.
- Useful if you plan to sell or refinance within a few years.
- Builder-funded buydowns can make a new home payment target more attainable.
Cons of temporary buydowns
- The cost can be several percent of the loan amount.
- Payments step up after the buydown period, so you must plan for the reset.
- Program rules and seller concession caps may limit what is possible.
When permanent points make sense
- You plan to hold the loan long term and want monthly savings for the life of the loan.
- You or the builder can pay points at closing within program limits.
- You confirm the break-even: cost of points divided by monthly savings.
Smart next steps for Somersett buyers
- Get written quotes for a baseline rate, a 2-1, a 3-2-1, and permanent points on the same day so you can compare fairly.
- Ask for a side-by-side payment summary that includes taxes, insurance, and HOA for the specific address.
- Confirm in writing how you will be qualified and how buydown funds will be handled.
- Decide your likely time in the home and whether you expect to refinance. Match the buydown strategy to that timeline.
- For tax questions on points or seller-paid credits, consult a qualified tax advisor.
If you want a clear, private review of options for a specific Somersett address or builder incentive, connect with Amy Keiffer with Dickson Realty for a tailored comparison and negotiation strategy.
FAQs
What is a 2-1 buydown on a 30-year fixed?
- A 2-1 buydown lowers your rate by 2 percent in year 1 and 1 percent in year 2, then your payment returns to the original note rate for the remaining term.
How much does a 3-2-1 buydown cost on a $600,000 loan?
- Using common payment factors, the first three years of subsidy add to about $26,784, which is roughly 4.46 percent of a $600,000 loan.
Do temporary buydowns help me qualify for a mortgage in Somersett?
- It depends on the lender and program; some qualify at the full note rate while others may use the reduced payment if buydown funds are documented and escrowed.
Should I pick a temporary or permanent buydown if I plan to refinance?
- If you expect to refinance within 2 to 3 years, a temporary buydown often delivers more early savings for less up-front cost than paying permanent points.
Can a builder require a preferred lender to get a buydown incentive?
- Yes, builder incentives sometimes depend on using a preferred lender, so request the lender’s written buydown and underwriting policy before you commit.
