A 3-2-1 Buydown in Colorado: The Full Three-Year Math

Explained on video, not in theory

Matt Wentz, Speak Straight Mortgage
NMLS 1852397 · Company NMLS 2426226

We price buydowns by hand against a price cut and show you both, on your actual file.

Does it fit inside the concession cap?

At $23,814 this buydown is 4.3% of the purchase price. Conventional caps seller contributions at 3% under 10% down, 6% at 10% down or more, and 9% at 25% down or more. FHA and USDA allow 6%, and VA does not work off a single number, so the commonly quoted 4% is not the ceiling people assume it is. With 5% down the conventional allowance is 3%, so this structure does not fit. Move to 10% down and the cap becomes 6% and it fits with room to spare, which is often the cheapest way to rescue a deal built around this buydown. FHA allows 6% at any down payment.

Closing costs compete for the same allowance. A seller who agrees to $23,814 for a buydown has that much less room for title, prepaids and escrows, so the order of operations matters when the contract gets written.

The four rules that decide whether this works

You qualify at the note rate, not the bought-down rate. On a temporary buydown the lender underwrites the payment at the full rate. The lower payment is real money in your pocket, but it does not stretch your approval by a dollar, and anyone telling you otherwise is describing a different product.

The money sits in an escrow account, and it is yours. The seller funds it at closing and the servicer draws from it each month to make up the difference. If you refinance or sell before the buydown runs out, the unused balance is applied to your loan, so it is not forfeited.

Concessions are capped, and the cap is what limits the buydown. On a conventional primary residence the seller can contribute 3% if you are putting less than 10% down, 6% once you are at 10% down or more, and 9% at 25% down or more (those are the 90%, 75.01-to-90%, and 75%-or-below loan-to-value tiers). FHA allows 6%. VA is the one that gets quoted wrong. You will hear a flat 4%, but only some seller-paid items count toward it and others do not, so the total a seller can contribute on a VA loan is often higher than 4%. It is worth having someone work it out on your file rather than assuming the 4% is the ceiling. USDA allows 6%. A 3-2-1 on a low down payment often will not fit inside the cap, which is the single most common reason one gets restructured.

It is a negotiation, not a product you order. The seller is paying for it, so it competes with a price reduction and with closing-cost help. Which of the three is worth more to you depends on how long you keep the loan, and that is arithmetic we will run rather than guess.

Price a 3-2-1 on my file →

Keep going

• Temporary rate buydowns, all three compared
• The 2-1 buydown
• The 1-1 buydown
• Buydown or price reduction, which is worth more

Who wrote this

Matt Wentz · NMLS 1852397

Broker and owner of Speak Straight Mortgage (Company NMLS 2426226), a CHFA Participating Lender licensed in Colorado. The buydown examples here and in the videos come from files he structured and closed himself, not from a marketing department. If a number on this page is wrong, it is worth telling us: matt@speakstraightmortgage.com.