Temporary Rate Buydowns in Colorado: 3-2-1, 2-1 and 1-1 Explained

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.

Every temporary buydown works the same way underneath. You take a normal 30-year fixed at whatever the market gives you, and then a pot of money sits in escrow and pays part of your payment for the first year or two or three. The rate on your note never changes. What changes is who writes the check each month.

Almost always the seller funds it, as a concession negotiated into the contract. That matters because it puts the buydown in direct competition with a price reduction, which is a comparison we run below rather than hand-waving at.

The examples in the videos

The three videos above are walked through on a $500,000 purchase at 6.25%, a $3,603 monthly payment before any buydown. Those are Matt's numbers off real files, and they are the figures you will hear on camera.

The 2-1 buydown

The 3-2-1 buydown

The 1-1 buydown

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.

When we tell people not to do it

If you are stretching to qualify and counting on refinancing before the buydown expires, the answer is no. The payment goes up on a fixed schedule whether rates cooperate or not, and year three arrives regardless. A buydown should make a payment you can already carry more comfortable, not make an impossible payment look possible for twenty-four months.

The other case is a seller who will trade either way. If they are indifferent between funding a buydown and cutting the price, the longer you plan to keep the loan the more the price cut wins, because it lowers what you owe forever instead of for two years.

Run both on my actual numbers →

Keep going

• The 2-1 buydown
• The 3-2-1 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.