Eyeing a new-build in Glendale or the West Valley and seeing “2-1 buydown” on the incentives sheet? You are not alone. Many builders use temporary buydowns to make first-year payments feel friendlier, but the details matter. In this guide, you will learn how a 2-1 buydown works, what it really costs, how lenders treat it, and the exact questions to ask before you sign. Let’s dive in.
2-1 buydown basics
A 2-1 buydown is a temporary interest-rate reduction on your mortgage. For the first year, your rate is 2 percentage points below your permanent note rate. In year two, it is 1 point below. From year three forward, your payment snaps to the full note rate for the remainder of the term.
The lower early payments are funded by a lump-sum subsidy. That money is usually paid at closing by a builder, seller, or lender and held to cover the difference between your reduced payment and the payment due at the full note rate.
How payments change over time
- Year 1: You pay at note rate minus 2 points.
- Year 2: You pay at note rate minus 1 point.
- Year 3 and beyond: You pay at the full note rate.
Because you are paying less in the early period, your principal paydown may be slightly slower at first. The long-term amortization follows the permanent note rate once the buydown ends.
Who typically pays in new builds
In Glendale, Peoria, and Surprise, builders often fund 2-1 or 3-2-1 buydowns to support sales when rates are higher. Sometimes the lender or the buyer contributes through points or credits. If the builder funds it, the amount usually appears as a seller or builder credit on your closing documents. Many programs treat builder-paid buydowns as seller concessions, which are subject to program limits. Always confirm how yours will be categorized with your lender.
Builders may require you to use a preferred lender to receive the incentive. Ask what happens if you use your own lender and whether a similar credit is available.
Glendale example with real numbers
To make this concrete, here is a simple illustration. Numbers are rounded and for demonstration only.
- Loan amount: $400,000
- Term: 30 years
- Note rate: 6.50%
- 2-1 structure: Year 1 at 4.50%, Year 2 at 5.50%, Year 3+ at 6.50%
Approximate monthly principal and interest:
- Full payment at 6.50%: about $2,529
- Year 1 at 4.50%: about $2,027
- Year 2 at 5.50%: about $2,271
Monthly savings versus the full payment:
- Year 1 savings: about $502 per month
- Year 2 savings: about $258 per month
Estimated subsidy required to fund the buydown for 24 months:
- Year 1: $502 × 12 = $6,024
- Year 2: $258 × 12 = $3,096
- Total funding: about $9,120
That total is roughly 2.28 points on a $400,000 loan. Exact funding can vary by lender method, program rules, and how the credit is recorded, so review the final figures on your Loan Estimate and Closing Disclosure.
Pros and cons for West Valley buyers
A 2-1 buydown can be helpful, especially in a higher-rate market. Here is what to weigh as you tour Glendale and West Valley communities.
Pros
- Lower early payments create more breathing room during move-in.
- May help with qualification, depending on lender policy.
- Useful if you expect income to rise, plan to refinance, or plan to sell within a few years.
- Builder-paid buydowns preserve the list price while easing payments.
Cons
- The reduction is temporary and payments increase in year three.
- Slightly slower principal paydown in the early months.
- Not always the best value compared with a permanent rate buydown or a price reduction.
- Can mask a higher permanent note rate if you only focus on the teaser payment. Read all disclosures and compare APRs.
When a buydown fits your situation
A 2-1 buydown is often a good match if:
- You plan to sell or refinance within a few years.
- The builder is paying the subsidy and you are not taking on extra fees to get it.
- Your income is expected to increase and you want lower payments during the first two years.
It may not be ideal if:
- You expect to hold the loan long term and could buy the rate down permanently with discount points.
- The incentive is contingent on a preferred lender that charges higher fees or yields a higher permanent rate.
Underwriting, rules, and disclosures to confirm
Lenders treat temporary buydowns differently in underwriting. Some qualify you at the full note rate, while others may consider the buydown payment or an effective rate for a period. Ask directly: At what payment and rate will you qualify me? Get the answer in writing if you can.
If a builder funds the buydown, many programs count it as a seller concession. Concession limits can apply on FHA, VA, and conventional loans. Verify the limit for your loan program so the credit does not exceed what is allowed.
You should see the buydown reflected on the Loan Estimate and the Closing Disclosure. Check where it appears and how it is labeled. Because funds are paid upfront to lower early payments, your APR will reflect these costs and credits. Compare APRs, not just teaser payments.
If you refinance before the buydown period ends, the builder subsidy already used is not refunded to you. There is usually no obligation to repay the builder. Confirm this with your lender.
Compare builder incentives apples to apples
In Glendale, Peoria, and Surprise, builders often advertise temporary buydowns when rates are higher. When comparing communities, request a simple side-by-side that includes:
- List price and any price reductions.
- Exact dollar amount the builder is funding for the buydown.
- Whether the incentive requires a preferred lender and any related fees.
- The permanent note rate and APR with and without the buydown.
- Your estimated monthly payment in Years 1, 2, and 3.
This makes it easier to evaluate alternatives like direct closing-cost credits or permanent points.
Budget beyond the mortgage
A lower early mortgage payment helps, but total housing cost matters. Plan for HOA fees, property taxes, homeowner’s insurance, and utilities. In new West Valley communities, pay attention to when property tax assessments begin and how HOA dues will affect your monthly budget.
Negotiation tips you can use this weekend
- Ask if the same credit is available with your lender of choice.
- If you plan to refinance soon, consider whether a closing-cost credit is more flexible than a temporary buydown.
- Request a line-item showing how many dollars are funding the buydown and confirm that number on your Closing Disclosure.
- Review the permanent note rate and APR side by side with other offers.
- Clarify underwriting: Will the lender qualify you at the note rate or the buydown payment?
Quick checklist to carry to model homes
- How is the buydown funded and for how many dollars?
- Is the incentive contingent on using a preferred lender? What are the fees if I do?
- How will the buydown appear on my Loan Estimate and Closing Disclosure?
- At what rate and payment will you underwrite my loan and calculate DTI?
- Are there any additional documentation or reserve requirements because of the buydown?
- What happens if I sell or refinance during the buydown period?
- What are my alternatives, such as a price reduction or closing-cost credit?
- Can you provide the permanent note rate and APR with and without the buydown?
- Can you put the buydown terms in writing in the contract and final disclosures?
How a local advisor helps you decide
A clear, side-by-side comparison protects your budget and your options. A local, builder-savvy team can help you spot the trade-offs, verify how incentives are recorded, and negotiate the structure that best fits your plans. You deserve a smooth path from contract to closing with no surprises.
At NEW HAUS Real Estate Team, we guide West Valley buyers through new-construction decisions with hospitality-level service. We coordinate with sales reps and lenders, review disclosures, and advocate for incentives that align with your timeline, budget, and goals. If a 2-1 buydown makes sense, you will know why. If a different structure serves you better, we will help you secure it.
Ready to compare Glendale builder incentives with confidence and clarity? Connect with Unknown Company for a thoughtful, no-pressure consultation.
FAQs
What is a 2-1 buydown in new construction?
- A temporary rate reduction funded upfront so you pay 2 points below your note rate in year one, 1 point below in year two, then the full note rate from year three on.
How much does a 2-1 buydown cost on a $400k loan?
- Using a 6.50% note rate example, the estimated funding is about $9,120, or roughly 2.28 points, to cover two years of reduced payments.
Who usually pays for 2-1 buydowns on West Valley builds?
- Builders commonly pay as an incentive, though lenders or buyers can fund them; builder-paid buydowns often count as seller concessions subject to program limits.
How do lenders underwrite loans with 2-1 buydowns?
- Policies vary; some qualify you at the full note rate while others may consider the reduced payment period, so ask your lender exactly which payment and rate they will use.
Is a 2-1 buydown better than a price cut in Glendale?
- It depends on your timeframe and goals; compare the permanent note rate, APR, and total cost against alternatives like a price reduction or closing-cost credit before deciding.
