{"id":8605,"date":"2026-10-14T08:49:58","date_gmt":"2026-10-14T13:49:58","guid":{"rendered":"https:\/\/tomo.com\/blog\/?p=8605"},"modified":"2026-10-14T08:50:01","modified_gmt":"2026-10-14T13:50:01","slug":"temporary-buydown-how-it-works-what-it-costs-and-what-happens-when-it-ends","status":"publish","type":"post","link":"https:\/\/tomo.com\/blog\/temporary-buydown-how-it-works-what-it-costs-and-what-happens-when-it-ends\/","title":{"rendered":"Temporary Buydown: How It Works, What It Costs, and What Happens When It Ends"},"content":{"rendered":"\n<p class=\"wp-block-paragraph\"><\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><\/p>\n\n\n\n<p class=\"has-medium-font-size wp-block-paragraph\"><strong>Key Takeaways<\/strong>:<\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>A temporary buydown lowers your share of the mortgage payment for the first one to three years. Money set aside at closing covers the difference; on a fixed-rate loan, your actual interest rate doesn&#8217;t change.<\/li>\n\n\n\n<li>Once the subsidy ends, you pay the full amount. Lenders qualify you using that full payment, so don&#8217;t assume you&#8217;ll refinance before it rises.<\/li>\n\n\n\n<li>Common structures include 1-0, 1-1, 2-1, and 3-2-1. Conventional loans generally permit reductions of up to 3 percentage points for up to three years.<\/li>\n\n\n\n<li>Sellers, builders, or lenders can fund a buydown. Seller-funded buydowns count toward program limits on seller contributions.<\/li>\n\n\n\n<li>Tomo Mortgage offers a lender-funded First Year Buydown. Tomo Mortgage covers the subsidy, so buyers don&#8217;t have to use seller credits to fund it.<\/li>\n\n\n\n<li>A buydown helps most upfront; a price cut reduces your loan balance and payments for the long term. Compare both before deciding.<br><\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>How does a temporary buydown work?<\/strong><\/h2>\n\n\n\n<p class=\"wp-block-paragraph\"><\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><\/p>\n\n\n\n<p class=\"has-medium-font-size wp-block-paragraph\">A temporary buydown lowers your mortgage payment for a set period, usually the first one to three years. Money is set aside at closing to cover the difference between your reduced payment and the full amount. Each month, your loan servicer draws from that money, and your payment gradually increases according to the schedule in your buydown agreement.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><\/p>\n\n\n\n<p class=\"has-medium-font-size wp-block-paragraph\"><a href=\"https:\/\/selling-guide.fanniemae.com\/sel\/b2-1.4-04\/temporary-interest-rate-buydowns\">Fannie Mae requires the account to be funded<\/a> before it purchases the loan, with the money held separately from the lender&#8217;s own funds. Your mortgage documents still reflect the full payment. If the subsidy becomes unavailable, you&#8217;re responsible for that amount.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Types of temporary buydowns<\/strong><\/h2>\n\n\n\n<p class=\"wp-block-paragraph\"><\/p>\n\n\n\n<p class=\"has-medium-font-size wp-block-paragraph\">The name tells you how much the payment rate is reduced each year. With a <strong>2-1 buydown<\/strong>, you pay as if your rate were 2 percentage points lower in year one and 1 point lower in year two. The full payment begins in year three.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><\/p>\n\n\n\n<p class=\"has-medium-font-size wp-block-paragraph\"><a href=\"https:\/\/selling-guide.fanniemae.com\/sel\/b2-1.4-04\/temporary-interest-rate-buydowns\">Fannie Mae<\/a> and <a href=\"https:\/\/sf.freddiemac.com\/working-with-us\/origination-underwriting\/mortgage-products\/mortgages-with-temporary-subsidy-buydown-plans\">Freddie Mac<\/a> generally allow conventional buydowns lasting up to three years, with an initial reduction of no more than 3 points and annual increases of no more than 1 point. FHA and VA have their own rules.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><\/p>\n\n\n\n<figure class=\"wp-block-table\"><table class=\"has-fixed-layout\"><tbody><tr><td><strong>Structure<\/strong><\/td><td><strong>Year 1<\/strong><\/td><td><strong>Year 2<\/strong><\/td><td><strong>Year 3<\/strong><\/td><td><strong>Full payment starts<\/strong><\/td><\/tr><tr><td>1-0<\/td><td>1 point lower<\/td><td>Full rate<\/td><td>Full rate<\/td><td>Year 2<\/td><\/tr><tr><td>1-1<\/td><td>1 point lower<\/td><td>1 point lower<\/td><td>Full rate<\/td><td>Year 3<\/td><\/tr><tr><td>2-1<\/td><td>2 points lower<\/td><td>1 point lower<\/td><td>Full rate<\/td><td>Year 3<\/td><\/tr><tr><td>3-2-1<\/td><td>3 points lower<\/td><td>2 points lower<\/td><td>1 point lower<\/td><td>Year 4<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n<p class=\"wp-block-paragraph\"><em>The reductions describe the rate used to calculate your share of principal and interest, not a change to the fixed interest rate in your mortgage note. Taxes, insurance, and mortgage insurance aren&#8217;t reduced.<\/em><\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><\/p>\n\n\n\n<p class=\"has-medium-font-size wp-block-paragraph\">Every structure eventually reaches the same full principal-and-interest payment on a fixed-rate loan. The actual savings and total subsidy cost depend on your loan amount, interest rate, and buydown terms.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Who pays for a temporary buydown, and what limits apply?<\/strong><\/h2>\n\n\n\n<p class=\"wp-block-paragraph\"><\/p>\n\n\n\n<p class=\"has-medium-font-size wp-block-paragraph\">Sellers, builders, and lenders commonly pay. Depending on the program, borrowers or employers may also contribute. Your lender may allow fewer options than the agency rules.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><strong>Seller and builder concessions<\/strong><\/h3>\n\n\n\n<p class=\"has-medium-font-size wp-block-paragraph\">For conventional loans, <a href=\"https:\/\/selling-guide.fanniemae.com\/sel\/b3-4.1-02\/interested-party-contributions-ipcs\">Fannie Mae counts<\/a> the full seller- or builder-funded buydown against the permitted contributions:<\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><\/p>\n\n\n\n<figure class=\"wp-block-table\"><table class=\"has-fixed-layout\"><tbody><tr><td><strong>Loan-to-value ratio (primary or second home)<\/strong><\/td><td><strong>Maximum interested-party contribution<\/strong><\/td><\/tr><tr><td>Over 90%<\/td><td>3%<\/td><\/tr><tr><td>75.01% to 90%<\/td><td>6%<\/td><\/tr><tr><td>75% or less<\/td><td>9%<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n<p class=\"wp-block-paragraph\"><\/p>\n\n\n\n<p class=\"has-medium-font-size wp-block-paragraph\"><strong>Loan-to-value (LTV)<\/strong> is the share of the home&#8217;s value you&#8217;re borrowing. The limits apply to the lower of the purchase price or appraised value, and contributions can&#8217;t exceed eligible costs.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><\/p>\n\n\n\n<p class=\"has-medium-font-size wp-block-paragraph\"><a href=\"https:\/\/www.hud.gov\/sites\/dfiles\/OCHCO\/documents\/40001-hsgh-update16-5.pdf\">FHA generally caps interested-party contributions at 6%<\/a> of the sales price. On VA loans, <a href=\"https:\/\/benefits.va.gov\/homeloans\/temporary-buydown.asp\">seller-funded buydowns count toward the 4% concession limit<\/a> based on reasonable value; ordinary closing-cost credits are treated differently.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><\/p>\n\n\n\n<p class=\"has-medium-font-size wp-block-paragraph\">For buyers making smaller down payments, these limits matter. An expensive temporary buydown could use most or all of the seller contribution you&#8217;re allowed, leaving less available for closing costs. See how <a href=\"https:\/\/tomo.com\/blog\/what-are-seller-credits\/\">seller credits<\/a> work before negotiating.<\/p>\n\n\n\n<p class=\"has-medium-font-size wp-block-paragraph\"><\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><strong>How Tomo Mortgage handles temporary buydowns<\/strong><\/h3>\n\n\n\n<p class=\"wp-block-paragraph\"><\/p>\n\n\n\n<p class=\"has-medium-font-size wp-block-paragraph\">Tomo Mortgage offers a <strong>First Year Buydown<\/strong>, a lender-funded temporary buydown that lowers your principal-and-interest payment for the first 12 months.<\/p>\n\n\n\n<p class=\"has-medium-font-size wp-block-paragraph\"><\/p>\n\n\n\n<p class=\"has-medium-font-size wp-block-paragraph\">During that first year, your payment is calculated as though your interest rate were 1 percentage point lower. Tomo Mortgage funds the difference at closing, rather than requiring you or the seller to pay for the subsidy. That means seller credits can still go toward other closing costs, instead of being used to fund the buydown.<\/p>\n\n\n\n<p class=\"has-medium-font-size wp-block-paragraph\"><\/p>\n\n\n\n<p class=\"has-medium-font-size wp-block-paragraph\">Starting in month 13, you make the full payment based on your locked interest rate. You&#8217;re qualified using that full payment from the beginning, so there shouldn&#8217;t be any surprise about the scheduled increase.<\/p>\n\n\n\n<p class=\"has-medium-font-size wp-block-paragraph\"><\/p>\n\n\n\n<p class=\"has-medium-font-size wp-block-paragraph\">Ask your Tomo Mortgage loan advisor whether the First Year Buydown is available for your loan and how it compares with other options.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><\/p>\n\n\n\n<div class=\"wp-block-buttons is-layout-flex wp-block-buttons-is-layout-flex\">\n<div class=\"wp-block-button\"><a class=\"wp-block-button__link wp-element-button\" href=\"https:\/\/tomo.com\/mortgage\/app\/preapproval\">Get started<\/a><\/div>\n<\/div>\n\n\n\n<p class=\"wp-block-paragraph\"><\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><strong>Lender-paid buydowns and pricing<\/strong><\/h3>\n\n\n\n<p class=\"wp-block-paragraph\"><\/p>\n\n\n\n<p class=\"has-medium-font-size wp-block-paragraph\">A lender-paid buydown isn&#8217;t necessarily the same as a lower-cost mortgage overall. Depending on the loan program and offer, pricing may differ from a loan without the buydown.<\/p>\n\n\n\n<p class=\"has-medium-font-size wp-block-paragraph\"><\/p>\n\n\n\n<p class=\"has-medium-font-size wp-block-paragraph\">Ask for comparable quotes on the same day, with and without a buydown. Check the note rate, annual percentage rate (APR), and cash due at closing\u2014not just the initial payment.<\/p>\n\n\n\n<p class=\"has-medium-font-size wp-block-paragraph\"><\/p>\n\n\n\n<p class=\"has-medium-font-size wp-block-paragraph\">APR includes certain borrowing costs, but doesn&#8217;t tell the whole story about temporary subsidies. The goal is to understand both your short-term payment relief and your long-term borrowing costs.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><strong>Agency rules vs. lender requirements<\/strong><\/h3>\n\n\n\n<p class=\"wp-block-paragraph\"><\/p>\n\n\n\n<p class=\"has-medium-font-size wp-block-paragraph\">Lenders can apply stricter requirements, called <em>overlays<\/em>. They may limit the structures offered, eligible funding sources, or borrower qualifications.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><\/p>\n\n\n\n<p class=\"has-medium-font-size wp-block-paragraph\">Ask what your lender actually allows before writing a buydown into an offer.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>What happens when the buydown ends?<\/strong><\/h2>\n\n\n\n<p class=\"wp-block-paragraph\"><\/p>\n\n\n\n<p class=\"has-medium-font-size wp-block-paragraph\">Your principal-and-interest payment rises to the full amount in your loan documents. On a fixed-rate mortgage, that payment stays the same afterward unless you refinance or pay off the loan. Property taxes and insurance may change separately.<\/p>\n\n\n\n<p class=\"has-medium-font-size wp-block-paragraph\"><\/p>\n\n\n\n<p class=\"has-medium-font-size wp-block-paragraph\"><a href=\"https:\/\/selling-guide.fanniemae.com\/sel\/b2-1.4-04\/temporary-interest-rate-buydowns\">Fannie Mae<\/a> and <a href=\"https:\/\/sf.freddiemac.com\/working-with-us\/origination-underwriting\/mortgage-products\/mortgages-with-temporary-subsidy-buydown-plans\">Freddie Mac<\/a> qualify borrowers at the full note rate rather than the reduced payment. Plan your own budget around that figure, too. Don&#8217;t rely on refinancing before the buydown ends. Future rates and eligibility are uncertain.<\/p>\n\n\n\n<p class=\"has-medium-font-size wp-block-paragraph\"><\/p>\n\n\n\n<p class=\"has-medium-font-size wp-block-paragraph\">For Freddie Mac loans, the servicer must <a href=\"https:\/\/guide.freddiemac.com\/app\/servicing\/section\/8504.2\">notify borrowers before each scheduled payment change<\/a>.<\/p>\n\n\n\n<p class=\"has-medium-font-size wp-block-paragraph\"><\/p>\n\n\n\n<p class=\"has-medium-font-size wp-block-paragraph\">If you sell or refinance early, unused funds are handled under your agreement and program rules. Fannie Mae may allow a payoff credit or a return to the borrower or funding lender. On <a href=\"https:\/\/benefits.va.gov\/homeloans\/temporary-buydown.asp\">VA loans<\/a>, remaining funds go toward the outstanding debt at payoff.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Should I get a buydown, price cut, or closing-cost credit?<\/strong><\/h2>\n\n\n\n<p class=\"wp-block-paragraph\"><\/p>\n\n\n\n<p class=\"has-medium-font-size wp-block-paragraph\">A temporary buydown gives you the most payment relief at the beginning. A price cut creates smaller monthly savings that last, and reduces what you owe. A closing-cost credit means less cash needed upfront.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><\/p>\n\n\n\n<p class=\"has-medium-font-size wp-block-paragraph\">Here&#8217;s how the options compare:<\/p>\n\n\n\n<figure class=\"wp-block-table\"><table class=\"has-fixed-layout\"><tbody><tr><td><strong>Use of seller funds<\/strong><\/td><td><strong>Effect on mortgage payments<\/strong><\/td><td><strong>How long it lasts<\/strong><\/td><\/tr><tr><td>Temporary buydown<\/td><td>Larger payment reduction upfront<\/td><td>During the buydown period<\/td><\/tr><tr><td>Price reduction<\/td><td>Smaller, ongoing payment reduction<\/td><td>As long as you keep the loan<\/td><\/tr><tr><td>Closing-cost credit<\/td><td>No change to principal and interest<\/td><td>Reduces cash at closing<\/td><\/tr><tr><td>Discount points (permanent buydown)<\/td><td>Depends on lender pricing<\/td><td>Life of a fixed-rate loan<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n<p class=\"wp-block-paragraph\"><\/p>\n\n\n\n<p class=\"has-medium-font-size wp-block-paragraph\"><strong>When does a price cut become the better deal?<\/strong><\/p>\n\n\n\n<p class=\"has-medium-font-size wp-block-paragraph\">A temporary buydown generally provides more immediate payment relief, while a price cut can deliver greater savings over time.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><\/p>\n\n\n\n<p class=\"has-medium-font-size wp-block-paragraph\">The longer you keep your mortgage, the more valuable those ongoing savings may become. A price cut also leaves you with a smaller loan balance from day one.<\/p>\n\n\n\n<p class=\"has-medium-font-size wp-block-paragraph\">There&#8217;s no universal break-even point. It depends on your interest rate, loan amount, how much the seller contributes, and how long you keep the mortgage.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><\/p>\n\n\n\n<p class=\"has-medium-font-size wp-block-paragraph\"><a href=\"https:\/\/tomo.com\/blog\/what-are-mortgage-interest-rate-points-and-how-to-save-money-on-your-mortgage\/\">Discount points<\/a> are another option. Unlike a temporary buydown, they lower the actual interest rate on your loan. How much each point lowers your rate varies by lender, and seller-paid points count toward conventional seller-contribution limits.<\/p>\n\n\n\n<p class=\"has-medium-font-size wp-block-paragraph\">Whichever option you choose, make sure you can comfortably afford the full mortgage payment.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><\/p>\n\n\n\n<div class=\"wp-block-buttons is-layout-flex wp-block-buttons-is-layout-flex\">\n<div class=\"wp-block-button\"><a class=\"wp-block-button__link wp-element-button\">Check today&#8217;s mortgage rates<\/a><\/div>\n<\/div>\n\n\n\n<p class=\"wp-block-paragraph\"><\/p>\n\n\n\n<p class=\"has-medium-font-size wp-block-paragraph\">Before choosing, talk to your loan advisor about available buydown options, including Tomo Mortgage&#8217;s First Year Buydown.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><\/p>\n\n\n\n<p class=\"has-medium-font-size wp-block-paragraph\">Tomo Mortgage \u00b7 NMLS #<a href=\"https:\/\/www.nmlsconsumeraccess.org\/EntityDetails.aspx\/COMPANY\/2059741\" title=\"\">2059741<\/a> \u00b7 Equal Housing Lender\u00a0<\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Frequently Asked Questions<\/strong><\/h2>\n\n\n\n<p class=\"wp-block-paragraph\"><\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><strong>Does a temporary buydown change my mortgage&#8217;s interest rate?<\/strong><\/h3>\n\n\n\n<p class=\"wp-block-paragraph\"><\/p>\n\n\n\n<p class=\"has-medium-font-size wp-block-paragraph\">On a fixed-rate mortgage, no. Money set aside at closing covers part of the payment temporarily; your note rate stays the same.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><strong>Does a temporary buydown increase how much I can borrow?<\/strong><\/h3>\n\n\n\n<p class=\"wp-block-paragraph\"><\/p>\n\n\n\n<p class=\"has-medium-font-size wp-block-paragraph\">Generally not. Lenders qualify you using the full payment rather than the temporary subsidy.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><strong>What happens to unused money if I sell or refinance?<\/strong><\/h3>\n\n\n\n<p class=\"wp-block-paragraph\"><\/p>\n\n\n\n<p class=\"has-medium-font-size wp-block-paragraph\">It depends on the loan program and your agreement. Fannie Mae permits certain payoff credits or returns; VA requires remaining funds to reduce the outstanding debt at payoff.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><strong>Is a temporary buydown the same as an adjustable-rate mortgage?<\/strong><\/h3>\n\n\n\n<p class=\"wp-block-paragraph\"><\/p>\n\n\n\n<p class=\"has-medium-font-size wp-block-paragraph\">No. A buydown temporarily subsidizes payments; an adjustable-rate mortgage can change its actual interest rate. Certain conventional ARMs allow temporary buydowns, too.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><strong>Can FHA and VA loans have temporary buydowns?<\/strong><\/h3>\n\n\n\n<p class=\"wp-block-paragraph\"><\/p>\n\n\n\n<p class=\"has-medium-font-size wp-block-paragraph\">Yes, on eligible fixed-rate loans, subject to each program&#8217;s rules and lender restrictions.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><strong>Can I use a temporary buydown when refinancing?<\/strong><\/h3>\n\n\n\n<p class=\"wp-block-paragraph\"><\/p>\n\n\n\n<p class=\"has-medium-font-size wp-block-paragraph\">Sometimes. Fannie Mae and Freddie Mac may allow them on eligible refinances without cash out, but not cash-out refinances. FHA doesn&#8217;t permit them on refinances. <a href=\"https:\/\/benefits.va.gov\/homeloans\/temporary-buydown.asp\">VA allows temporary buydowns on eligible fixed-rate cash-out refinances and IRRRLs<\/a>. A typical buydown is funded when a new mortgage closes, not added to an existing loan afterward.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Key Takeaways: How does a temporary buydown work? A temporary buydown lowers your mortgage payment for a set period, usually the first one to three years. Money is set aside at closing to cover the difference between your reduced payment and the full amount. Each month, your loan servicer draws from that money, and your [&hellip;]<\/p>\n","protected":false},"author":49,"featured_media":8606,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"fifu_image_url":"","fifu_image_alt":"","_jetpack_feature_clip_id":0,"_jetpack_memberships_contains_paid_content":false,"footnotes":"","jetpack_post_was_ever_published":false},"categories":[1],"tags":[],"class_list":["post-8605","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-uncategorized"],"aioseo_notices":[],"aioseo_head":"\n\t\t<!-- All in One SEO 4.9.10 - aioseo.com -->\n\t<meta name=\"description\" content=\"A temporary buydown lowers your mortgage payment for 1\u20133 years, not your fixed rate. 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