What is the difference between 2 point buy down and 2-1 buy down?

Question

The realtor from Lennar presented me an offer with a

2 point buy down for long term lock and they are paying aroundd $4600 for it.

He also mention about the seller paying $5700 for a 2-1 buy down buy down.

From my understanding, I think 2points buy down will buy the rate down (for ex: 6% will become 5.8%)?

also 2-1 buy down is paying first year with 4.8%, 2nd year 5.8% then on the 3rd year till end of loan will be 5.8%?

I just wanted to make sure if what im thinking was right.

Answer 1

A buy-down is a tactic in which the seller pays a lender to lower the buyer's rate. Although the rate can be bought down for the life of the mortgage, it is far more common to see sellers buy down the rate on behalf of their eventual buyer for the first two or three years of the mortgage.

This financial tool all but disappears from mortgage menus during strong markets. After all, who needs them when potential buyers are knocking down doors to become homeowners? But when the going gets tough, buy-downs return with a vengeance.

The object of a temporary buy-down is to bring the initial rate down to a point where the buyer can either qualify for financing or can't resist the lower monthly payment. Generally, they come in two versions:

• 3-2-1: Under this model, the rate is bought down by the sellers to 3 percentage points below the market for the first year, 2 points for the second year and 1 point for the third.

• 2-1: This truncated version works exactly the same way, except the buy-down rate drops 2 percentage points in the first year and 1 point for the second year.

In both cases, once the buy-down period ends, the rate returns to where it would have been had there been no reduction. So, if the market rate for a fixed loan is 6 percent, a 3-2-1 buy-down would result in a 3 percent start rate. Then, the rate would move to 4 percent during the second year and 5 percent for the third. After three years, the rate would be back to 6 percent for the remaining term.

A third version is a permanent one in which the rate is bought down just enough to make the property stand out — but for the entire life of the loan - the 2 point buy down you cited.

For a complete explination and specific examples, click on the source link below.