How a 2/1 Buydown Helps Buyers and Sellers in Flower Mound

Summary

A practical breakdown of how a 2/1 buydown works on a $500,000 home in Flower Mound, including buyer payment examples and seller incentive costs.

Over the last couple months we’ve seen the 30 year mortgage rate fluctuate in the low 6% range. Even at that rate, mortgage payments can feel steep. The 2/1 buydown is a popular strategy that can help both buyers and sellers.

2/1 seller Buydown Example Scenario

Purchase price: $500,000

Down payment: 5% ($25,000)

Loan amount: $475,000

Fixed rate: 6.125% (30-year term)

Monthly principal & interest payment: ≈ $2,886 (does not include monthly property taxes, home insurance or mortgage insurance)

The way a 2/1 seller buydown works is, the rate you lock is amortized over the entire term of the loan. The amortization is calculated just like any other loan and the amount that is paid to principal and interest is actually the same too. The difference is, the amount the seller agrees to pay on the contract is used to offset your first and 2nd years payment to the extent you pay “as if” the interest rate was 2% lower the first year, and 1% lower the 2nd year.

Year	Rate	Approx. Monthly Payment	Monthly Savings	Annual Savings
1	4.125%	≈ $2,301	≈ $585	≈ $7,020
2	5.125%	≈ $2,584	≈ $302	≈ $3,624
3–30	6.125%	≈ $2,886	—	—

That savings for the buyer in the above scenario is $10,600. Therefore, this is also the amount that will be negotiated that the seller pay on your behalf in the purchase contract for the seller temporary buydown.

Benefit to Homebuyers

The 2/1 buydown gives you immediate payment relief for the first 2 years of the loan. As a local mortgage broker in Flower Mound, I always advise that my clients save the difference in payment so that they get accustom to what the payment will be after the 2nd year. This way, if refinancing doesn’t make sense because mortgage rates do not drop during that first 2 years, you can get a feel of what the actual payment is like.

Benefit to Seller

Most sellers would not consider such a plan right when they list their home unless they are in a hurry to sell and get their home to move. The buydown typically means the seller will net less profit on the sale. On the other hand, if a seller is having an issue with getting good traffic to view their home, this can be an added marketing piece to their listing. Instead of lowering the listing price on a home by $10,000-$15,000 to get traffic, you might first market your property with the temporary buydown. The net profit would result in nearly the same as if you reduced the list price.

Bottom Line

Whether buying or selling your home, a 2/1 buydown can be a win-win strategy in the current Real Estate market for a buyer or a seller.

If you’d like me to run the numbers for you situation, feel free to reach out. I can show you exactly how a buydown would look for your budget or listing. Contact me!