PATRICK'S QUICK ANSWER
A 3-2-1 buydown lowers your rate 3% in year 1, 2% in year 2, and 1% in year 3, then returns to the full note rate. It costs roughly 2% to 3% of the loan amount, and it is most valuable when a builder or seller funds it. Ask Patrick how 3-2-1 buydowns would work for your loan.
If the 2-1 buydown buys you two years of breathing room, the 3-2-1 buys three, and for a buyer stretched thin in the early years that extra year can be the difference between closing and walking away.
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% to 3% of the loan amount, because the subsidy covers three years instead of two. Sellers or builders typically pay for 3-2-1 buydowns as purchase incentives, most commonly in new construction communities.
How a 3-2-1 buydown 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 and beyond is 6.5%. The subsidy escrow covers the difference each month.
The meaning: like the 2-1, your actual loan rate never changes. The buydown is a funded subsidy that covers the gap between the reduced payment and the real payment.
The real-world consequence: the step-up happens three times, so the year 4 payment is the one you must be able to carry for the long haul.
What it costs
Cost is roughly 2% to 3% of the loan amount. On a $400,000 loan, expect $8,000 to $12,000 in total subsidy. This is higher than a 2-1 buydown because it covers three years of reduced payments.
The money consequence: the bigger subsidy is the price of the bigger relief, and it only makes sense when someone else, usually the builder, is funding it.
The real-world play: if you are paying for a 3-2-1 out of your own pocket, run the break-even carefully. If the builder is paying, the math changes completely.
3-2-1 vs 2-1
A 2-1 buydown gives two years of reduced payments at a lower cost. A 3-2-1 buydown gives three years of reduced payments at a higher cost. Choose 3-2-1 if you need maximum initial payment relief.
The meaning: the choice is how many years of relief you need and who is paying for it.
The real-world consequence: for a buyer whose income grows quickly, the 2-1 is usually enough. For a buyer stretched thin, the extra year of the 3-2-1 is worth the higher subsidy.
When a 3-2-1 makes sense
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 three to four years.
The real-world play: builders offer 3-2-1 buydowns as a standard incentive in new home communities because it makes payments affordable and sells homes faster.
Make it a great one, Patriot Nation. On a $350,000 loan at a 6.5% note rate, year 1 at 3.5% runs about $1,571 a month, year 2 at 4.5% about $1,773, year 3 at 5.5% about $1,987, and year 4 at 6.5% about $2,212. Total savings across the three buydown years are roughly $15,600.
Ask Patrick about 3-2-1 buydowns
Get a straight answer on 3-2-1 buydowns and whether paying points makes sense for your loan.
