Looking at homes in Cary but today’s mortgage rates give you pause? You are not alone, especially if you are relocating to the Triangle or juggling move-in costs. A 2-1 buydown can lower your first two years of payments and give you breathing room while you settle in. In this guide, you will learn how a 2-1 works, who can pay for it, and when it makes sense in Cary’s market. Let’s dive in.
2-1 buydown basics
A 2-1 buydown is a temporary payment reduction on your mortgage. It lowers your interest rate by 2 percentage points in year 1 and by 1 point in year 2. Starting in year 3, your payment adjusts to the full note rate.
The rate itself does not change on your loan documents. Instead, an upfront subsidy is set aside at closing. That money covers the difference between the reduced payment and the full payment for the buydown period.
How payments change
- 2-1 buydown: year 1 is note rate minus 2.00 points, year 2 is minus 1.00 point, then the full note rate from year 3 onward.
- 3-2-1 buydown: year 1 is minus 3.00 points, year 2 is minus 2.00, year 3 is minus 1.00, then full rate.
Both options provide early payment relief, but the 2-1 is more common and often more cost-effective in Cary.
Cost and escrow
The buydown cost is the total dollar difference between the reduced monthly payments and the full payments during the buydown period. Those funds are typically deposited into an escrow account controlled by the lender or servicer at closing. The exact cost depends on your loan amount, term, note rate, and the size of the temporary reductions.
Example with Cary-friendly numbers
Here is a simple illustration to show how a 2-1 buydown affects payments:
- Purchase price: $500,000
- Down payment: 20 percent
- Loan amount: $400,000
- 30-year fixed note rate: 6.5 percent
Approximate principal and interest payments:
- At 6.5 percent (note rate): about $2,528 per month
- Year 1 at 4.5 percent: about $2,028 per month
- Year 2 at 5.5 percent: about $2,272 per month
That is roughly $500 per month saved in year 1 and about $256 per month in year 2. The simple, un-discounted total is about $9,000. Actual lender calculations use mortgage math and may differ, but this gives you a feel for the scale.
Who can pay for a buydown
Several parties can fund a buydown in Cary:
- Builder or developer: Very common in new construction. Builders use buydowns as financing incentives.
- Seller on a resale: Treated as a seller concession that reduces the seller’s net proceeds.
- Lender: Less common to fund outright, though lenders may offer credits that reduce closing costs subject to underwriting rules.
- Buyer: You can fund it yourself if you want lower initial payments.
If a seller or builder pays, the contribution must fit within loan program limits for concessions. Always confirm the maximum allowed for your loan type and down payment.
Loan rules to confirm
Temporary buydowns are generally allowed on many loan types, but each program has rules:
- Conventional loans: Permitted if they follow agency and lender guidelines. Seller concessions have caps that vary by down payment.
- FHA, VA, USDA: Often allow seller-funded temporary buydowns, with documentation and contribution limits.
- Qualification: Some lenders allow you to qualify using the reduced buydown payments if the funds are documented and escrowed. Others require you to qualify at the full note rate.
- Documentation: Expect a written buydown agreement, evidence of funds, and confirmation of how payments will be applied.
Tax treatment can be nuanced. If you pay the buydown yourself, it may be treated like prepaid interest, and deductibility can vary. If a seller or builder pays, buyers usually cannot deduct it. Consider speaking with a tax advisor about your specific situation.
When a buydown makes sense in Cary
Cary is part of the Raleigh-Cary metro and draws many relocating professionals from Research Triangle Park. Prices are higher than many parts of North Carolina, and buyers can be rate-sensitive. A 2-1 buydown can be a smart bridge in several scenarios:
- You expect salary growth or bonuses within 12 to 24 months after a relocation.
- Your lender will qualify you at the reduced payment, and that helps your debt-to-income ratio.
- You are buying new construction where builders offer buydowns as part of an incentive package.
- You want to reduce near-term monthly carrying costs without putting more into the down payment.
When to skip a buydown
A temporary buydown is not always the best choice. Consider passing if:
- You plan to keep the loan long term and could get more value from a permanent rate buydown or larger down payment.
- The local market is extremely competitive and sellers prefer price reductions or other terms.
- Your lender requires you to qualify at the full note rate. In that case, the buydown reduces payments but does not improve qualification.
New build vs resale in Cary
New construction incentives
Builders in Cary and Wake County often bundle buydowns with closing cost assistance, upgrades, or a price reduction. To compare options, you should:
- Ask for the exact dollar value of the buydown in the builder addendum.
- Confirm the funds will be deposited into a lender-controlled escrow at closing.
- Compare the buydown’s cost to an equivalent price reduction. A lower price can help future resale and appraisals. A buydown lowers payments for a set time without changing price.
- Understand builder motivations. Some prefer buydowns because they can advertise lower payments while keeping the sale price intact for comparable sales.
Resale negotiations
On resale homes, sellers may offer a buydown to stand out to rate-sensitive buyers. When negotiating, weigh:
- Price reduction vs payment relief. A price cut is permanent. A buydown is temporary but may help your cash flow during the first two years.
- Appraisal and loan program rules. Keep concessions within allowed limits and coordinate with your lender early.
Negotiation and closing checklist
Use this step-by-step list to keep your Cary purchase on track:
Loan program and policy
- Confirm which programs you will use and your lender’s buydown policy.
- Ask if the lender will use the reduced payment to qualify you and what documentation is required.
Dollars and control of funds
- Get the exact buydown amount in writing and who will fund it.
- Confirm funds will be escrowed under lender or servicer control at closing.
Contract language
- Include a buydown addendum with the schedule, percentage reductions, and start-end dates.
- State the exact dollar deposit, who pays, and whether it counts as a seller concession under your loan.
- Require written confirmation from the lender that the buydown is acceptable for underwriting and how you will qualify.
Servicing and disbursement
- Verify how the servicer will apply the subsidy to your monthly payments.
Tax considerations
- If you are paying the buydown yourself, ask your CPA how the cost is treated. If a seller or builder pays, note that buyers generally cannot deduct it.
Two lender questions to ask
When you are shopping for a mortgage, ask these questions to get clear answers:
- If the seller funds a 2-1 buydown, will you use the reduced payments to qualify me, and what documentation do you need?
- What is the exact dollar amount required for the buydown at closing for my loan amount and note rate?
Your next steps in Cary
If you are weighing new construction against resale, or a price cut against a buydown, the right choice depends on your plans and cash flow. A clear side-by-side comparison can show which path best supports your move and long-term goals. Our local team can help you price out each option, coordinate with your lender, and structure offers that keep you competitive in Cary.
Ready to run the numbers and shop with confidence? Reach out to Cobb Zies & Co for a friendly consult and a clear plan.
FAQs
What is a 2-1 buydown and how long does it last?
- A 2-1 buydown lowers your rate by 2 points in year 1 and 1 point in year 2, then your payment adjusts to the full note rate in year 3 and beyond.
Who usually pays for 2-1 buydowns in Cary new construction?
- Builders commonly fund temporary buydowns as part of an incentive package, with funds deposited into a lender-controlled escrow at closing.
Will a 2-1 buydown help me qualify for a mortgage?
- It depends on your lender; some allow qualification using the reduced payments if funds are escrowed, while others require qualifying at the full note rate.
Is a price reduction better than a buydown on a resale home?
- A price reduction is permanent and can help future resale and appraisals, while a buydown is temporary and mainly improves near-term cash flow.
What happens after the buydown period ends?
- Your monthly payment steps up to the full note rate outlined in your loan, since the note rate itself never changes during a temporary buydown.
Can FHA, VA, or USDA loans use temporary buydowns?
- Many government-backed programs allow seller-funded temporary buydowns, but each has specific rules and contribution limits that your lender must follow.
Are 2-1 buydown costs tax deductible for buyers?
- If the buyer pays, it may be treated like prepaid interest with distinct rules; if a seller or builder pays, buyers generally cannot deduct it and should ask a tax advisor.
