How 2-1 Buydowns Help Buyers in Higher-Rate Markets

By George Koutsos, Senior Vice President, CrossCountry Mortgage

Higher mortgage rates have changed the conversation with buyers.

A buyer may love the house. They may be comfortable with the purchase price. They may even be fully approved. But when they see the monthly payment, that's where the hesitation starts.

As a buyer's agent, one of the most useful tools you can have right now is understanding how to negotiate around the payment, not just the price.

A 2-1 temporary rate buydown can help you do exactly that.

What does a 2-1 buydown do?

A 2-1 buydown temporarily reduces the rate used to calculate your buyer's principal and interest payment by 2 percentage points during the first year and 1 percentage point during the second year.

If the note rate were 7.000%, for example:

Year 1: Payment based on 5.000%
Year 2: Payment based on 6.000%
Year 3+: Payment based on 7.000%

The buyer still has a 7.000% note rate. The difference in the payments during the first two years is funded upfront through the temporary buydown.

Why this matters to a buyer's agent

When you're negotiating an offer, it's easy to focus on getting the seller to reduce the price.

But ask yourself what your buyer is actually trying to accomplish.

If they're concerned about the monthly payment, a price reduction may not create nearly as much immediate payment relief as using those negotiating dollars toward a temporary buydown.

That's why I think buyer agents should get into the habit of asking:

"Before we ask for a lower price, what would those same dollars do toward lowering my buyer's payment?"

That's a question we can answer before you write the offer.

Put actual numbers in front of your buyer

Suppose you're considering asking the seller for $20,000 or $25,000 in concessions.

Call me before you structure the offer.

We can run both scenarios:

Option A: Use the negotiation to reduce the purchase price.

Option B: Use an allowable seller contribution to fund a 2-1 buydown.

Then we can show your buyer the actual difference in monthly principal and interest.

Now you're not telling your buyer that one option "sounds better." You're giving them numbers and allowing them to decide what matters more to them.

It can make a higher-rate environment easier to navigate

The first couple of years of homeownership can be expensive.

Buyers are moving, furnishing a home, making improvements and adjusting to a new monthly housing expense.

A temporary buydown can reduce the principal and interest payment during those first two years and give the buyer some additional breathing room as they transition into the home.

That can be especially meaningful for buyers who are comfortable with the long-term payment but would benefit from a lower payment upfront.

Don't build the strategy around refinancing

I would not tell a buyer:

"Don't worry about the rate. You'll just refinance in a year or two."

We don't know where rates will be in the future, and refinancing is never guaranteed.

The buyer needs to qualify for the mortgage based on the applicable underwriting requirements and should be comfortable with the full payment.

The 2-1 buydown should stand on its own as a benefit.

If rates eventually create a worthwhile refinancing opportunity, we can have that conversation when the time comes.

Call me before you write the offer

This is where the strategy becomes useful.

If you're working with a buyer who loves a property but is uncomfortable with the payment, don't assume your only option is to negotiate the price.

Send me the listing and tell me what you're thinking about offering.

I'll run the numbers so you can see what a price reduction does versus what a seller-funded 2-1 buydown could do for your buyer's payment.

Then you and your buyer can decide how you want to structure the offer.

The goal isn't simply to negotiate more from the seller. It's to make whatever you negotiate work harder for your buyer.

George Koutsos

781-864-0889

george@teamGK.com