Torn between buying now and waiting for rates to drop? If you are shopping in Southwest Las Vegas, a 2-1 buydown can ease you into homeownership by lowering your first two years of payments. You still get a fixed-rate loan, but your monthly costs start lower to help your budget adjust. In this guide, you will see how a 2-1 buydown works, what it costs, the rules that apply in Clark County, and how to negotiate one with sellers and builders. Let’s dive in.
What a 2-1 buydown is
A 2-1 buydown is a temporary rate reduction on a fixed-rate mortgage. In year 1, you pay the note rate minus 2 percentage points. In year 2, you pay the note rate minus 1 point. From year 3 on, you pay the full note rate for the rest of the loan term.
The buydown is funded with a lump sum at closing and held in a buydown escrow account. Each month, your servicer draws from that account to cover the difference between your reduced payment and the full payment. The funds can come from the seller or builder, you, or a lender credit tied to loan pricing.
The key benefit is short-term cash flow relief. Your payment starts lower while you settle in, then steps up after two years. It does not permanently lower your interest rate.
Program rules in Southwest Las Vegas
Lender and investor rules drive how buydowns are approved. Nevada does not change those federal and investor standards, so local practice depends on your loan type, lender, and the specific deal.
Seller and builder contribution limits
Contribution caps can limit how much a seller or builder can pay toward your costs, including a 2-1 buydown. Typical caps for a primary residence are:
- Conventional loans (Fannie Mae/Freddie Mac), seller contributions:
- Down payment under 10%: limit commonly 3% of the sale price
- Down payment 10% to 25%: limit commonly 6%
- Down payment 25% or more: limit commonly 9%
- FHA loans: seller concessions commonly limited to 6% of the sale price
- VA loans: seller concessions commonly limited to 4% of the sale price
- USDA loans: seller concessions generally allowed if reasonable and customary, confirm with your lender
Builders are treated like sellers for these caps, even when incentives are packaged as buydowns.
Underwriting and qualification
Most lenders qualify you at a higher rate than the reduced buydown payment. Many underwrite at the full note rate. That means a 2-1 buydown helps your near-term payment, but it may not increase how much you can borrow if underwriting uses the higher rate. Lenders also document the buydown plan to show you can afford the payment when the subsidy ends.
Documentation basics
Your lender will document the source of the buydown funds and may require that money be escrowed for the servicer to draw each month. The settlement statement will show the credit from the seller or builder, or your funds, and closing will include instructions for the buydown account. Always confirm the investor allows temporary buydowns for your loan type.
Real numbers: a local example
Here is a simple example to show the math. Assume you buy a $400,000 home with 20% down and finance $320,000 on a 30-year fixed loan at a 6.00% note rate with a 2-1 buydown.
- Monthly principal and interest at 6.00%: about $1,921
- Year 1 at 4.00%: about $1,528, saving about $393 per month
- Year 2 at 5.00%: about $1,718, saving about $203 per month
- Total two-year subsidy: about $7,152
- Cost as a percent of the loan amount: about 2.24%
That lump sum, roughly 2.2% of the loan, is what a seller or builder would fund to deliver the lower payments for two years. Compared with buying permanent points to drop a rate by 2 percentage points, a temporary buydown is usually far cheaper.
When a 2-1 buydown makes sense
Consider a 2-1 buydown if any of these fit your plan:
- You want lower payments while you settle into a new home, new job, or new city
- You expect income to rise in the next one to two years
- You plan to refinance if rates fall, but want payment relief now
- You are buying new construction where builders are offering incentives
- Market conditions favor buyers and sellers are open to concessions
If you plan to hold the same loan long term and value permanent savings, discount points or a price reduction could be better.
How to negotiate one in Southwest Las Vegas
In new-home communities, builders often advertise incentives to help buyers hit a monthly payment goal. A 2-1 buydown is a common tool in these packages. On resale homes, you can ask for a buydown credit when the seller is motivated or the home has longer days on market.
Here is a simple approach that works well locally:
- Prepare the numbers
- Have your lender produce a written buydown cost calculation for the property and loan type.
- Check the applicable seller contribution cap for your loan.
- Make the ask
- Present the buydown as a net-proceeds neutral option compared with a price cut. Show how a lump-sum buydown can be less costly to the seller than a larger price reduction while delivering a stronger monthly payment for you.
- Structure it correctly
- Write the offer with a seller credit “to fund a 2-1 buydown per lender calculation,” subject to program limits.
- Confirm the funds will be escrowed in a buydown account at closing for the servicer to apply to payments.
- Close the loop
- Verify the settlement statement shows the buydown credit and that the escrow instructions are in place.
- Ask how the servicer will show the subsidy on your first statements and where to direct questions.
Pros and cons
Pros
- Lower payments for the first two years help your cash flow
- Often costs less than buying permanent rate reductions to achieve the same short-term payment
- Helps sellers and builders market a more affordable monthly payment
Cons
- Not a permanent rate reduction, so payments rise in year 3
- Many lenders qualify you at the full note rate, so borrowing power may not increase
- Requires a lump-sum subsidy at closing and must meet loan program rules
Common pitfalls to avoid
- Exceeding seller or builder contribution limits for your loan type
- Assuming you can qualify based on the reduced year 1 payment
- Forgetting to plan for the payment increase when the buydown ends
- Not confirming the lender, investor, and settlement agent will approve and escrow the buydown correctly
Alternatives to consider
- Permanent discount points: Pay upfront points to reduce your interest rate for the life of the loan. This can make sense if you plan to keep the loan longer.
- Price reduction: A lower price reduces your loan amount and monthly payment permanently. Sellers sometimes prefer this to credits.
- Lender credit: Take a slightly higher rate for a lender credit to offset closing costs. This can be combined with, or used instead of, a buydown depending on your goals.
Your next step
A 2-1 buydown can be a smart way to buy in Southwest Las Vegas while keeping your first two years of payments in check. The right structure depends on your loan program, the seller’s flexibility, and your timeline. If you want help running the numbers, comparing a buydown to permanent points or a price cut, and negotiating the strongest offer, connect with Emile Tambicannou. Book a quick consult and get a local plan you can trust.
FAQs
What is a 2-1 buydown and how do payments change?
- A 2-1 buydown lowers your mortgage rate by 2 percentage points in year 1 and 1 point in year 2, then your rate returns to the full note rate from year 3 on, so payments step up over time.
Who can pay for a 2-1 buydown in Southwest Las Vegas?
- The seller or builder commonly funds it as a credit at closing, a lender can offer credits tied to pricing, or you can pay it yourself if allowed by your loan program and contribution limits.
What are seller concession limits for 2-1 buydowns?
- Typical caps are 3% for conventional loans with under 10% down, 6% for 10% to 25% down, and 9% for 25% or more; FHA commonly allows 6% and VA commonly allows 4%, subject to lender and investor rules.
How much does a 2-1 buydown cost on a $320,000 loan?
- Using a simple example, the total two-year subsidy is about $7,152, which is roughly 2.24% of the loan amount, with bigger loans or higher rates requiring larger subsidies.
Does a 2-1 buydown help me qualify for a larger loan?
- Often no, because many lenders qualify you at the full note rate rather than the reduced buydown payments, so it mostly helps cash flow rather than borrowing power.
What happens after the buydown ends?
- The buydown subsidy stops and you pay the full note rate for the rest of the loan term, so plan for a higher payment beginning in year 3.
