Are higher mortgage rates putting your Lone Tree home plans on hold? You are not alone. Many buyers want a way to ease into payments without overextending upfront, and many sellers want to attract offers without cutting price. A 2-1 buydown can help both sides. In this guide, you will see how a 2-1 buydown works, what it might save at common Lone Tree price points, and the steps to put one together the right way. Let’s dive in.
What is a 2-1 buydown?
A 2-1 buydown is a temporary financing tool that lowers your interest rate by 2 percentage points in year 1 and by 1 percentage point in year 2. Starting in year 3, your payment resets to the permanent note rate.
- Year 1: note rate minus 2.00%
- Year 2: note rate minus 1.00%
- Year 3 and beyond: full note rate
The note rate does not change. A lump-sum subsidy paid at closing covers the difference between the full payment and the reduced payments during the buydown period.
How a 2-1 buydown works
Who pays the subsidy
Typically the seller or builder funds the buydown as a seller concession. Buyers or lenders can fund it too. When the seller pays, the credit appears on the closing statement and in the purchase contract.
Where the funds go
At closing, the subsidy is deposited into a buydown escrow. Each month during the buydown period, the lender uses those funds to make up the difference between the reduced payment and the payment at the note rate.
What you pay each month
You pay the lower temporary payment in years 1 and 2. Taxes, insurance, HOA dues, and mortgage insurance are generally unchanged. Your lender should show you both the reduced payments and the full payment at the permanent rate so you can budget.
How qualification works
Most lenders underwrite you at the permanent note rate. That means a 2-1 buydown usually improves early cash flow but often does not change whether you qualify. Confirm the rule for your specific loan program.
Lone Tree examples: potential savings
These examples use a 30-year fixed loan with 20% down, principal and interest only, and a hypothetical 7.00% note rate. Actual rates and costs vary.
Entry/condo townhome at $500,000 (loan $400,000)
- Note-rate P&I at 7.00%: $2,661.21 per month
- Year 1 at 5.00%: $2,147.29 per month
- Year 2 at 6.00%: $2,398.20 per month
- Monthly savings: Year 1 $513.92, Year 2 $263.01
- Total subsidy required: $9,323.16
Mid single-family at $800,000 (loan $640,000)
- Note-rate P&I at 7.00%: $4,257.93 per month
- Year 1 at 5.00%: $3,435.10 per month
- Year 2 at 6.00%: $3,837.93 per month
- Monthly savings: Year 1 $822.83, Year 2 $420.00
- Total subsidy required: $14,913.96
Luxury at $1,200,000 (loan $960,000)
- Note-rate P&I at 7.00%: $6,386.89 per month
- Year 1 at 5.00%: $5,152.66 per month
- Year 2 at 6.00%: $5,756.90 per month
- Monthly savings: Year 1 $1,234.23, Year 2 $629.99
- Total subsidy required: $22,370.64
These figures are principal and interest only. Taxes, insurance, HOA dues, and any mortgage insurance are additional.
Step-by-step example: $800,000 Lone Tree home
Here is how a 2-1 buydown would pencil out for a mid-tier Lone Tree home using the assumptions above.
- Calculate monthly payments at each rate (P&I only):
- 7.00% note rate: $4,257.93
- 5.00% in year 1: $3,435.10
- 6.00% in year 2: $3,837.93
- Find the monthly savings:
- Year 1 savings: $822.83 per month, $9,873.96 for the year
- Year 2 savings: $420.00 per month, $5,040.00 for the year
- Total subsidy at closing:
- Total subsidy: $14,913.96 to fund the first 24 months
- What you pay over time:
- Year 1 P&I: $3,435.10 per month
- Year 2 P&I: $3,837.93 per month
- Year 3 and beyond P&I: $4,257.93 per month
Your lender will confirm qualification rules, usually based on the permanent 7.00% rate in this example.
Seller concessions and Lone Tree details
Seller concession rules depend on the loan program. Conventional, FHA, VA, and USDA loans each set limits and documentation requirements. Ask the lender whether your chosen structure is allowed, how it must be disclosed, and whether the buydown will consume part of the permitted seller concession amount.
For Douglas County closings, confirm recording fees and any HOA-related charges with your title company. Colorado does not generally have a statewide real estate transfer tax. Local fees can still apply, so your title team will provide exact figures.
2-1 buydown vs permanent rate buydown
A temporary buydown lowers payments for only the first years. A permanent buydown uses discount points to reduce the note rate for the life of the loan.
When a 2-1 can make sense:
- You want lower payments during the first 1 to 2 years.
- You expect income to rise or plan to refinance in a few years.
- A seller wants to boost buyer appeal without cutting price.
When permanent points can make sense:
- You plan to stay long term and want a lasting payment reduction.
- You have cash to pay points today for savings over time.
- You want the lower note rate to help with qualification.
Comparing cost and impact:
- Cost: A temporary buydown typically costs less to achieve near-term relief because it covers a short window. Exact pricing depends on rates and program rules.
- Qualification: Many lenders qualify you at the permanent note rate. A permanent buydown can improve qualification. A temporary buydown usually does not.
- Flexibility: A 2-1 is a strong marketing tool and a helpful bridge for buyers expecting changes ahead. Points are better if you will hold the mortgage for many years.
Your action checklist
If you are a seller
- Confirm with the buyer’s lender that your buydown structure is allowed and how the subsidy will be calculated.
- Decide on a 2-1, 3-2-1, or custom setup based on your marketing goals.
- Put clear contract language in place with a specific dollar amount for the buydown and who pays related fees.
- Coordinate with the title company to deposit funds correctly and show the credit on the Closing Disclosure.
- Compare a buydown credit versus a price reduction to see which produces better net proceeds and marketability.
If you are a buyer
- Ask the lender how you will be qualified. Many underwrite at the permanent note rate.
- Get a written buydown calculation that shows your year-by-year payments and the total subsidy.
- Confirm whether any seller concessions, including the buydown, stay within program limits.
- Ask about reserves or additional documentation the lender may require.
- Understand that buydown funds are usually non-refundable and apply only during the temporary period.
Important notes and disclaimers
- All numbers above are illustrative. Actual mortgage rates, point pricing, and buydown costs vary by lender, loan program, borrower credit, and market conditions. The examples above are principal-and-interest only and exclude taxes, insurance, HOA dues, and PMI.
- Loan program limits and seller concession rules vary by investor and change over time. Lenders and loan programs (conventional, FHA, VA, USDA) have specific requirements. Buyers and sellers should confirm with the lender and their title/closing agent.
- This report is informational only; readers should consult their mortgage lender, tax advisor, and closing/title company for specific, binding figures and legal/tax advice.
Get local guidance
If you are weighing a buydown for a Lone Tree purchase or planning to offer one on your listing, you deserve a clear plan and a confident negotiation. Our female-led, team-based approach means you get attentive service, fast answers, and the coordination it takes to align the lender, title, and contract details without drama. Connect with The Denver Trio to explore your options and map the right strategy for your move.
FAQs
What is a 2-1 buydown and how does it work?
- A 2-1 buydown temporarily lowers your interest rate by 2% in year 1 and 1% in year 2, funded by a lump-sum subsidy at closing that covers the payment difference.
Do I still have to qualify at the full note rate?
- Most lenders qualify you at the permanent note rate rather than the reduced temporary rate, so confirm the rule for your loan program with your lender.
Can the seller fund a 2-1 buydown in Lone Tree?
- Yes. Sellers commonly fund buydowns as a concession that appears on the purchase contract and Closing Disclosure, subject to program limits and lender approval.
How much does a 2-1 buydown cost on a $640,000 loan?
- Using the example above at a 7.00% note rate, the total two-year subsidy is about $14,913.96 to reduce payments in years 1 and 2.
Do taxes and insurance change with a 2-1 buydown?
- No. The buydown affects principal and interest only. Property taxes, homeowners insurance, HOA dues, and any mortgage insurance remain separate.
What happens if I refinance during the buydown period?
- Ask your lender how any remaining buydown funds are handled. Programs vary, and buydown funds are usually non-refundable and limited to the temporary period.
