Rate Buydowns in Washington: 2-1 Buydowns vs Permanent Buydowns Explained
Important Note Before We Start
This article is for general educational purposes only.
If you are already under contract, your lender and your own real estate agent must guide you, as Washington law does not allow outside agents to advise on another agent’s active transaction.
What follows is a plain-English explanation of how rate buydowns typically work in Washington.
1. What Is a Rate Buydown?
A rate buydown is a way to reduce a buyer’s interest rate by paying money upfront at closing.
That upfront cost is often covered by:
The seller
The builder
The buyer
Or a combination of all three
Rate buydowns are commonly used in Washington when:
Interest rates feel high
Sellers want to make their home more attractive
Buyers want lower monthly payments without changing price
2. The Two Main Types of Rate Buydowns in WA
In Washington, you’ll usually hear about two types:
2-1 Temporary Buydowns
Permanent Rate Buydowns
They sound similar — but they work very differently.
3. What Is a 2-1 Buydown?
A 2-1 buydown is a temporary interest rate reduction for the first two years of the loan.
Typical structure:
Year 1: Rate is 2% lower
Year 2: Rate is 1% lower
Year 3+: Rate returns to the full note rate
Example:
If the full interest rate is 6.5%:
Year 1: 4.5%
Year 2: 5.5%
Year 3+: 6.5%
This can significantly reduce early monthly payments.
4. Why Buyers Use 2-1 Buydowns
2-1 buydowns are often appealing to buyers who:
Expect income to increase
Plan to refinance later
Want breathing room in the first few years
They are not permanent savings, but they can help buyers ease into homeownership.
5. Who Pays for a 2-1 Buydown in Washington?
In most Washington transactions, the cost is paid through:
Seller concessions
Builder incentives
Occasionally buyer funds
This means the cost is often negotiated as part of the offer — not paid separately.
Understanding concessions is critical, especially in competitive or shifting markets:
Why WA Homes Fall Out of Contract (Real Reasons Deals Collapse)
6. What Is a Permanent Rate Buydown?
A permanent buydown lowers the interest rate for the entire life of the loan.
Instead of stepping up over time, the reduced rate:
Starts lower
Stays lower
Never adjusts upward
The cost is paid upfront at closing, typically in the form of discount points.
7. Why Buyers Choose Permanent Buydowns
Permanent buydowns often make sense for buyers who:
Plan to stay in the home long-term
Want predictable payments
Don’t want to rely on refinancing
While they cost more upfront than temporary buydowns, the long-term savings can be substantial.
8. Seller Perspective: Buydowns vs Price Reductions
From a seller standpoint, rate buydowns can sometimes be more attractive than lowering price.
Why?
Monthly payment reduction can feel more impactful to buyers
Lower price doesn’t always solve affordability
Buydowns keep comparable sales stronger
This is especially useful when sellers also plan to buy another home.
9. Buydowns When Selling and Buying at the Same Time
For move-up buyers, rate buydowns can be part of a larger coordination strategy:
Using proceeds from a sale
Negotiating concessions wisely
Keeping monthly payments manageable
This process requires careful planning:
The Step-by-Step Move-Up Buyer Plan: How to Sell Your Current Home & Buy Your Next One Smoothly in Washington (2025 Guide)
10. Limitations and Rules Around Buydowns
Buydowns are subject to:
Loan program rules
Seller concession limits
Lender approval
Not every loan allows every type of buydown, and limits vary depending on:
Down payment
Occupancy
Loan type
This is why buydown conversations must always involve the buyer’s lender.
11. Common Misunderstandings About Buydowns
Some common misconceptions:
Buydowns guarantee refinancing later (they don’t)
Buydowns are always better than price reductions
Sellers can offer unlimited concessions
Understanding the structure avoids disappointment later in escrow.
12. The Big Picture: Buydowns Are a Tool, Not a Fix-All
Rate buydowns can be powerful — but only when they align with:
Buyer plans
Market conditions
Loan guidelines
They’re one of many tools used in Washington real estate to bridge affordability gaps without derailing deals.
And once again, if you are already under contract, your lender and your own agent are the only parties who should advise you on how a buydown applies to your transaction.
If you’re not under contract yet and want to understand financing strategies before writing an offer in Washington, learning about tools like rate buydowns early can help you make more confident decisions.
Written by: Lani Fisher — Washington Realtor Helping Everyday Buyers & Sellers With Confidence