{"id":3656,"date":"2024-09-11T09:32:06","date_gmt":"2024-09-11T14:32:06","guid":{"rendered":"https:\/\/tomo.com\/blog\/?p=3656"},"modified":"2025-02-10T13:33:49","modified_gmt":"2025-02-10T18:33:49","slug":"what-is-a-3-2-1-buydown","status":"publish","type":"post","link":"https:\/\/tomo.com\/blog\/what-is-a-3-2-1-buydown\/","title":{"rendered":"What is a 3-2-1 buydown?"},"content":{"rendered":"\n<p>Think of a 3-2-1 buydown as a mortgage\u2019s way of easing you into the big league. It\u2019s like giving yourself a financial warm-up before hitting the full payment stride.<\/p>\n\n\n\n<p><\/p>\n\n\n\n<p>When you\u2019re getting a <a href=\"https:\/\/tomo.com\/blog\/what-are-the-steps-to-getting-a-mortgage\/\" title=\"mortgage\">mortgage<\/a>, those initial years can feel like a financial sprint. The 3-2-1 buydown lets you start with lower payments, so you\u2019re not overwhelmed right out of the gate. You get a 3% <a href=\"https:\/\/tomo.com\/mortgage\/rates\" title=\"rate\">rate<\/a> drop in the first year, a 2% drop the second year, and a 1% drop in the third year. This makes the transition to your full mortgage payment smoother and less stressful.<\/p>\n\n\n\n<p><\/p>\n\n\n\n<p>The goal of a 3-2-1 buydown is to make homeownership more manageable and less of a budget shock, giving you a little breathing room while you settle into your new place.<\/p>\n\n\n\n<p>Here&#8217;s an example:<\/p>\n\n\n\n<p><\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Year 1:<\/strong> You get a sweet 3% off your <a href=\"https:\/\/tomo.com\/blog\/what-are-apr-and-interest-rates-which-is-more-important\/\" title=\"interest rate\">interest rate<\/a>. If your regular rate is 6%, you\u2019re only paying 3% this year.<\/li>\n\n\n\n<li><strong>Year 2:<\/strong> The rate bumps up, but it&#8217;s still a deal\u20142% off the regular rate. So, if it\u2019s 6%, you\u2019re at 4%.<\/li>\n\n\n\n<li><strong>Year 3:<\/strong> It\u2019s still a deal, just not as much\u20141% off the regular rate. So you\u2019re at 5% instead of 6%.<\/li>\n\n\n\n<li><strong>Year 4 and beyond:<\/strong> Back to reality with the full 6% rate for the rest of the loan.<\/li>\n<\/ul>\n\n\n\n<p><\/p>\n\n\n\n<p><\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Who pays for a 3-2-1 buydown?<\/h3>\n\n\n\n<p><\/p>\n\n\n\n<p>The 3-2-1 buydown isn\u2019t a freebie\u2014it\u2019s usually covered by one of these players:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Seller Contribution:<\/strong> Sometimes, the home seller will cover the cost of the buydown as a way to make their property more enticing to buyers. It\u2019s like a little incentive to help close the deal.<\/li>\n\n\n\n<li><strong>Builder Contribution:<\/strong> If you&#8217;re buying a newly constructed home, the builder might chip in for the buydown as part of their promotional strategy. It\u2019s a way to make the new home more appealing and help you ease into your new mortgage payments.<\/li>\n\n\n\n<li><strong>Lender Contribution:<\/strong> Occasionally, lenders may offer a buydown as part of their financing package. This can be a tactic to attract buyers and close the deal, making your mortgage payments more manageable in the early years.<\/li>\n<\/ul>\n\n\n\n<p><\/p>\n\n\n\n<p>In any case, the 3-2-1 buydown helps lower your initial payments, making it a bit easier to manage your finances when you first move in.<\/p>\n\n\n\n<p><\/p>\n\n\n\n<h3 class=\"wp-block-heading\">3-2-1 buydown, what&#8217;s the catch?<\/h3>\n\n\n\n<p><\/p>\n\n\n\n<p>Alright, so while a 3-2-1 buydown can be a total win for lowering those monthly payments at the start, there are a few downsides you should know about:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Over-Spending Trap:<\/strong> One risk with a 3-2-1 buydown is that it might make you think you can go for a pricier home than you really should. The lower payments now can be tempting, but make sure you don\u2019t stretch beyond your means.<\/li>\n\n\n\n<li><strong>Payment Shock:<\/strong> Those lower monthly payments aren\u2019t forever. After the first few years, you\u2019ll face a payment jump, and you\u2019ll need to be ready for that spike.<\/li>\n\n\n\n<li><strong>Income Gamble:<\/strong> If you\u2019re banking on a big salary boost to handle the future payments, be careful. If your income doesn\u2019t rise as expected, you could end up in a tight spot financially.<\/li>\n\n\n\n<li><\/li>\n<\/ul>\n\n\n\n<p>So, while the 3-2-1 buydown can give you a nice breather at the start, make sure you know what is in store!<\/p>\n\n\n<div style=\"padding-top:var(--wp--preset--spacing--30);padding-bottom:var(--wp--preset--spacing--30);padding-left:var(--wp--preset--spacing--30);padding-right:var(--wp--preset--spacing--30);margin-top:var(--wp--preset--spacing--30);margin-bottom:var(--wp--preset--spacing--30);margin-left:0;margin-right:0;\" class=\"has-link-color wp-elements-c54b177fd5d2f341f8967a20726f2ac0 wp-block-post-author has-text-color has-contrast-color has-background has-tertiary-background-color has-large-font-size\"><div class=\"wp-block-post-author__content\"><p class=\"wp-block-post-author__name\"><a href=\"https:\/\/tomo.com\/blog\/author\/clairegtomonetworks-com\/\" target=\"_self\">Claire Gallaudet<\/a><\/p><p class=\"wp-block-post-author__bio\">Claire is a Mortgage Analyst at Tomo, where she explores the data and trends shaping the housing market. She is especially interested in how economic forces impact homebuyers. A Seattle native, she now lives in Austin, where she balances analysis and communications with teaching yoga and walks around the lake with her dog.<\/p><\/div><\/div>\n\n\n<p>If you&#8217;re ready to start your journey to homeownership, <a href=\"https:\/\/tomo.com\/mortgage\/app\/preapproval\" title=\"\">get pre approved with Tomo Mortgage today.<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Think of a 3-2-1 buydown as a mortgage\u2019s way of easing you into the big league. It\u2019s like giving yourself a financial warm-up before hitting the full payment stride. When you\u2019re getting a mortgage, those initial years can feel like a financial sprint. The 3-2-1 buydown lets you start with lower payments, so you\u2019re not [&hellip;]<\/p>\n","protected":false},"author":31,"featured_media":3751,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"fifu_image_url":"","fifu_image_alt":"","_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[38],"tags":[],"class_list":["post-3656","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-mortgage-dictionary"],"aioseo_notices":[],"jetpack_featured_media_url":"https:\/\/tomo.com\/blog\/wp-content\/uploads\/2024\/09\/3-2-1-buydowns-tomo-mortgage-jpg.webp","jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/tomo.com\/blog\/wp-json\/wp\/v2\/posts\/3656","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/tomo.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/tomo.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/tomo.com\/blog\/wp-json\/wp\/v2\/users\/31"}],"replies":[{"embeddable":true,"href":"https:\/\/tomo.com\/blog\/wp-json\/wp\/v2\/comments?post=3656"}],"version-history":[{"count":2,"href":"https:\/\/tomo.com\/blog\/wp-json\/wp\/v2\/posts\/3656\/revisions"}],"predecessor-version":[{"id":3658,"href":"https:\/\/tomo.com\/blog\/wp-json\/wp\/v2\/posts\/3656\/revisions\/3658"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/tomo.com\/blog\/wp-json\/wp\/v2\/media\/3751"}],"wp:attachment":[{"href":"https:\/\/tomo.com\/blog\/wp-json\/wp\/v2\/media?parent=3656"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/tomo.com\/blog\/wp-json\/wp\/v2\/categories?post=3656"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/tomo.com\/blog\/wp-json\/wp\/v2\/tags?post=3656"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}