• Consumer confidence ebbed in October after 2 straight monthly increases, reflecting concerns about inflation and a possible recession.
  • The economy posted its first period of positive growth for 2022 in the third quarter, at least temporarily easing recession fears.
  • Weekly jobless claims edged higher to 217K but were still below the 220K estimate and still signaled a strong labor market.

  • Despite cooling at a record pace in August, home prices were 13% higher nationally than last year, according to Case-Shiller.
  • New home sales fell 10.9% in September, following an unexpected gain in August. New home sales account for approximately 10% of the market.
  • Higher rates have pushed mortgage demand to nearly half of what it was last year. Last week’s purchase apps were down 42% year over year.

Market Minute Report - Mortgage News

What is a 2-1 Buydown Loan? 

Oct 26
Category | General


When interest rates were at historic lows, a typical fixed rate mortgage loan was all most people needed. Now, rates have risen. They’re still below long-term averages, yet appreciably higher than before. And of course, higher interest rates lead to higher monthly payments.

Here at Greenway Mortgage, we recognize the rising rate environment and how homeownership may feel out of reach for some. That’s why we now offer a 2-1 Buydown Program to help counteract the trend towards higher rates.

It’s what everyone’s talking about these days, a 2-1 Buydown.  We’re sure you’ve probably heard of it, but you may not know exactly what it means. That’s where we come in.

What is a 2-1 Buydown Loan?

With a 2/1 Buydown, borrowers get a 30-year fixed rate loan with an interest rate that’s temporarily discounted 2% during the first year and 1% the second year by paying an upfront fee at closing. By the third year of the mortgage term, the interest rate reaches the original interest rate on the loan. 

Borrowers can ease their way into a home with lower payments that simply step up at the end of the first and second year then remain fixed for the remainder of the loan. Here are the details:

Program Details:

  • 1st Year: Interest rate starts at 2% under the locked rate
  • 2nd Year: Interest rate is 1% below the locked rate.
  • 3rd Year: Loan converts to the locked interest rate.

The Fine Print

  • Borrower must qualify for full monthly payment (before buydown rate is applied).
  • Third-party contributions are eligible.
  • Eligibility requirements, exclusions and other terms and conditions apply.

Example of a 2-1 Buydown

Say you lock in a 5% interest rate, the 2-1 Buydown Program allows you to make monthly payments at a 3% interest rate for the entire first year of your mortgage.

Then, in year two, your payments would be based on a 4% interest rate.

Finally, once you hit year three and for the remaining life of your loan, your payments would reflect your originally-agreed-upon 5% interest rate.

What Types of Loans is a 2-1 Buydown Available For?

2-1 Buydowns are available on conforming fixed products.

  • 30-year Fixed Rate Conforming Loans*
  • Conventional Purchases | Primary: 1-4 Units, Second Home: 1 Unit
  • Conventional Refis | Limited Cash-out
  • HomeReady / HomePossible | Purchase Primary: 1 Unit
  • FHA, VA, USDA | Purchase Primary: 1-4 Units 
  • FHA 2nd Home | 1 Unit

*High Balance available Conventional, HomeReady, HomePossible

Who Can Benefit From a 2-1 Buydown?

  • Borrowers who may earn more within a few years of obtaining mortgage.
  • Borrowers who want to use the savings to reduce bills/debt.
  • Borrowers receiving contribution or gifts that will fund the buydown at closing.

How Can a Borrower Benefit from a Temporary Buydown?

  • Borrowers will pay less money upfront on their monthly mortgage payments.
  • It helps ease borrowers into making monthly payments and it saves you money during the first two years of homeownership.
  • Lessens the burned on your wallet with any extra expenses typically associated with moving into a new house (furniture, paint, new appliances, etc.)

Why are we seeing the 2-1 Buydown Program now?

In an environment where interest rates are rising, the 2-1 buydown benefits home buyers by helping them ease into the full monthly payment. It’s especially appealing for first-time homebuyers who are having a hard time purchasing a home in a housing market like we’re seeing today.

Bottom Line

If you’re currently house hunting in this turbulent housing market and need to find solutions to lower your monthly payments, this is a program is worth exploring. The market is shifting, but while it’s influenced by high interest rates and high home prices, borrowers may benefit from a 2-1 buydown.

So, are you interested in purchasing a new home and like the idea of easing into your mortgage payments? Contact the team at Greenway Mortgage to get started.

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As we near the end of 2022, the housing market is still in a constant state of shifts and changes. Some bigger or more impactful than others, but the truth remains the same: while we wish we had a crystal ball, we’ll never be able to predict what’s going to happen. However, one thing will always remain constant: people will always need a place to call home.

There are three big questions in real estate and in the mortgage industry right now. We’ll cover them here. So, before you hit the panic button, give this a read!

Will Mortgage Rates Continue to Rise?

To answer this question, it’s important to understand the why behind the reason mortgage rates have doubled since the beginning of the year and that’s due to inflation.

To ease inflation, the Federal Reserve is taking steps to tame inflation by slowing the economy. In turn, these decisions have an impact on mortgage rates. Until this is under control, we may continue to see rates stay high or rise even higher.

Despite the high mortgage rates, there is still opportunity in the real estate market.

“There is no doubt that the increasing mortgage rate will make homebuying even more challenging, . . . buyers may still find opportunities, as these changes coincide with the time of the year when buyers have historically found the best market conditions to obtain more bargaining power,” said Jiayi Xiu, economist for

What Will Happen to Home Prices?

Dave Ramsey sums it up: “The root issue of what drives house prices almost always is supply and demand.”

And when you look at the graph below, you’ll see why we have seen such a large slowdown in home price appreciation in the last few months.

Supply And Demand Year Over Year - Mortgages

The sudden uptick in mortgage rates and lingering inflation has changed the playing field in the housing market. So, as the pace of sales slows, the more active listings there are. That does not mean we’ll see national deprecation in home values.

Overall, experts are projecting continued price appreciation in most markets, averaging about 1.8% in 2023. However, there are some overheated areas where experts are projecting slight depreciation, but certainly not enough to call it a crash.

Should I Buy A Home Right Now?

Homeownership has many financial and non-financial benefits. It’s true that it costs more to buy a home today than it did last year, but the same is also true for renting. This means, either way, you’re going to be paying more.

Although affordability is challenging right now, buying a home helps you gain equity will will help grow your net worth.

The best way to answer this question is that homeownership will always win over time. It’s a long game.

You can choose to put your money over time into rent and not get a return or play the long game, invest in homeownership and benefit from your investment.

Bottom Line:

As we said before, we wish we had a crystal ball to predict what’s going to happen with mortgage rates or price appreciation, but we unfortunately can’t control that.

Remember, the team at Greenway Mortgage is always here to help answer any questions you have. We are happy to sit down with you to discus which home buying option best suites your scenario and find out how much home you can afford. We’re here to help.

Here are some helpful resources:

  • Jobless claims fell last week to 214K, indicating the labor market remains tight even as demand for labor is cooling.
  • Consumer spending was basically flat in September, up only 0.4% compared to August, but retail sales were still up 8.2% from a year ago.
  • Fed members this week continued emphasizing the need to raise rates into 2023 to curb inflation, even if it causes a recession.

  • Existing home sales fell to the slowest pace since September 2012. The 8th straight month of declines came as mortgage rates continued to rise.
  • Housing starts dropped 8.1% in September, and single-family home starts fell to their lowest level in more than two years. Permits also fell 3.1%.
  • Buyers in many areas are finding bright spots in the market, including seller concessions, easier negotiations and more time to consider options.

Market Minute Report - Mortgage News

  • Both wholesale and consumer inflation reports showed inflation continued to rise in September despite multiple Fed rate increases.
  • The labor market remains strong. Nonfarm payrolls increased more than expected in September, and unemployment fell to 3.5%.
  • Jobless claims were up slightly last week. Claims reached their highest level since August but still showed a stable labor market.

  • Purchase mortgage applications dropped 2% for the week. The average purchase loan fell below $400K for the first time since December 2021.
  • Higher mortgage rates are creating an appetite for adjustable rate mortgages. ARMs represented about 12% of last week's applications.
  • Despite higher mortgage rates, home prices remain higher compared to a year ago and are unlikely to fall steeply due to persistently tight supply.

Market Minute Report - Mortgage News

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