Veterans, active-duty service members and other eligible borrowers may now take advantage of 2/1 and 1/0 temporary interest-rate buydowns when purchasing a primary residence with a VA loan. High-balance financing options are also available for qualifying borrowers. A temporary buydown lowers the borrower’s effective interest rate and monthly principal and interest payment during the first one or two years of the loan. The cost of the buydown is paid through eligible seller or builder concessions rather than by permanently changing the mortgage’s note rate.
How a 2/1 Buydown Works
With a 2/1 buydown, the borrower’s effective interest rate is reduced during the first two years:
- The rate is 2 percentage points below the note rate during the first year.
- The rate is 1 percentage point below the note rate during the second year.
- Beginning in the third year, the borrower makes payments based on the full note rate for the remainder of the loan.
For example, if the mortgage has a 6.5% note rate, payments would initially be calculated using a 4.5% rate during year one and a 5.5% rate during year two. Payments would then be based on the full 6.5% note rate beginning in year three.
How a 1/0 Buydown Works
A 1/0 buydown provides a reduced payment for the first 12 months:
- The effective rate is 1 percentage point below the note rate during the first year.
- Beginning in the second year, payments are based on the full note rate.
Using the same 6.5% example, payments during the first year would be calculated at 5.5%. The full 6.5% note rate would apply beginning in year two.
VA Buydown Program Highlights
- 30-year fixed-rate mortgages
- Available for VA purchase loans
- Primary residences only
- High-balance loan options available
- Single-family residences, PUDs and eligible condominiums
- Purchase transactions only
- 24-month temporary buydown period for 2/1 programs
- 12-month temporary buydown period for 1/0 programs
- Borrowers qualify using the full note rate, not the temporarily reduced rate
- Buydown costs paid through eligible seller or builder concessions
- Seller concessions limited to a maximum of 4% on VA loans
- Certain non-standard terms may be available
Why Consider a Temporary Buydown?
The first year of homeownership frequently comes with additional expenses, including moving costs, furniture, repairs, and property improvements. A temporary buydown can reduce the required mortgage payment during this initial period and give qualified borrowers time to adjust to the expenses associated with their new home. A buydown may also help sellers and builders make a property more attractive without reducing its purchase price. Instead, an agreed-upon concession is used to fund the difference between the temporarily reduced payments and the payments required at the full note rate. Because the borrower must qualify at the full note rate, the program does not rely on the temporary payment reduction to establish affordability.
Explore Your VA Loan Options
A 2/1 or 1/0 temporary buydown can provide meaningful payment relief during the first years of a VA mortgage while preserving the predictability of a 30-year fixed-rate loan. Contact us to learn whether you qualify for a VA temporary buydown, compare available structures, and determine how seller or builder concessions could be applied toward your home purchase.
