A 3-2-1 buydown reduces your rate by 3% in year 1, 2% in year 2, and 1% in year 3. The full rate applies from year 4 onward. It offers larger initial savings than a 2-1 buydown.
The cost is higher, typically 2-3% of the loan amount, because the subsidy covers three years instead of two. This is best for buyers expecting significant income growth.
Sellers or builders typically pay for 3-2-1 buydowns as purchase incentives. They are most common in new construction communities.
How It Works
The rate reduction applies to the note rate. If your note rate is 6.5%, year 1 is 3.5%, year 2 is 4.5%, year 3 is 5.5%, and year 4+ is 6.5%. The subsidy escrow covers the difference each month.
Cost
Cost is roughly 2-3% of the loan amount. On a 00K loan, expect K-2K total subsidy. This is higher than a 2-1 buydown because it covers 3 years of reduced payments.
Vs 2-1 Buydown
2-1 buydown: 2 years of reduced payments, lower cost. 3-2-1 buydown: 3 years of reduced payments, higher cost. Choose 3-2-1 if you need maximum initial payment relief.
When to Use
Best for: buyers with tight budgets in the first few years who expect income to grow, buyers in new construction with builder incentives, and those planning to sell or refinance within 3-4 years.
Seller Incentives
Builders often offer 3-2-1 buydowns as a standard incentive in new home communities. It helps them sell homes faster by making payments more affordable for buyers.
Example Math
On a 50K loan at 6.5%: Year 1 at 3.5% = ,571/month, Year 2 at 4.5% = ,773/month, Year 3 at 5.5% = ,987/month, Year 4 at 6.5% = ,212/month. Three-year savings: roughly ,500+ per year.