1-0 Buydown Explained: How a Lender Credit Can Lower Your Payment in Year One
The year one payment strategy many buyers overlook
If you are shopping for a home, you have probably heard the phrase “rates are high” more times than you can count. What gets missed is that there are financing strategies designed to make the first year of homeownership more comfortable, without changing the long term structure of a fixed-rate loan.
One of the most common is the 1-0 temporary buydown, and in some cases it can be paired with a lender credit to reduce your upfront cash needs.
For more background on how points and lender credits work, a great consumer friendly resource is consumerfinance.gov. Consumer Financial Protection Bureau+1
What is a lender credit
A lender credit is money provided by the lender that can reduce your out of pocket closing costs. The tradeoff is usually a higher interest rate than you would receive without the credit. In other words, you are choosing a rate and cost combination that fits your goals. Consumer Financial Protection Bureau+1
This matters because in many real world scenarios, a “credit” is created by selecting a slightly higher fixed rate, then using that credit to cover eligible costs at closing.
What is a 1-0 temporary buydown
A temporary buydown reduces the borrower’s effective interest rate for a limited period at the start of the loan. With a 1-0 buydown, the rate is reduced by 1% for the first 12 months, then it returns to the fixed rate for the remainder of the loan term. Consumer Financial Protection Bureau+1
Agency guidelines commonly require that temporary buydowns increase in steps of no more than 1% per year and do not extend beyond a few years, which is why you will often hear about 1-0, 2-1, or 3-2-1 structures. Fannie Mae Selling Guide
How the lender credit and 1-0 buydown can work together
Here is the concept Kellyn Bowden is describing for River Ridge buyers:
You may qualify for a lender credit (example: $4,000).
That credit can be applied to eligible closing costs, and in some cases it can also be applied to the cost of the 1-0 buydown.
During year one, your payment can be meaningfully lower than it would be at the fixed rate, giving you room for savings, moving costs, upgrades, or simply breathing room. Consumer Financial Protection Bureau+1
Important detail: the “fixed rate” you return to after the first year is the one you locked, which may be the rate associated with receiving that lender credit. That is why it is so important to compare options side by side.
Who this strategy tends to fit best
A 1-0 buydown can be a strong fit if:
You want a lower payment at the start while you rebuild savings after closing.
You expect income to increase within the next 12 months.
You are buying new construction or a home where credits or concessions are available.
You prefer a predictable long term payment after the first year, rather than an adjustable loan.
What to ask your loan officer before you choose it
Before you move forward, ask for:
A side by side comparison of the loan with and without the lender credit.
The exact first year payment and the payment after month 12.
What fees or costs the credit can cover in your specific loan program.
How this affects your APR and total cost outlook.
You can also use the Loan Estimate and Closing Disclosure education on consumerfinance.gov to understand where credits and costs appear on your paperwork. Consumer Financial Protection Bureau+1
Bottom line
Smart financing can make a great home feel even better, especially in year one. If you are looking at homes in River Ridge, Kellyn Bowden can walk you through whether a lender credit and a 1-0 buydown is available for your scenario, and whether the payment savings aligns with your timeline and goals.
