Seeing “2-1 buydown” signs at Aurora model homes and wondering if it is a smart move? These incentives can lower your first-year payment and make a new build feel within reach. You also want to know exactly how they work and what happens when the discount ends. This guide explains builder buydowns in plain language, how lenders approve you, the pros and trade-offs, and a simple way to compare offers. Let’s dive in.
Builder rate buydown basics
A builder rate buydown is when the builder pays an upfront amount that lowers your effective mortgage payment for a set time. Your loan still has a normal note rate; the buydown funds cover the difference each month during the discount period. You can see how the math works using a simple temporary buydown calculator and explainer.
There are two types. A temporary buydown lowers payments for 1 to 3 years. A permanent buydown (often called paying points) reduces your interest rate for the life of the loan and is structured differently than temporary plans, including cost and underwriting treatment, as covered by the Wall Street Journal’s overview of mortgage rate buydowns.
Common temporary structures
- 3-2-1 buydown: Year 1 is 3 points below your note rate, Year 2 is 2 points lower, Year 3 is 1 point lower, then it resets to the full rate.
- 2-1 buydown: Year 1 is 2 points lower, Year 2 is 1 point lower, then it resets to the full rate.
- 1-0 or 1-1 buydown: A 1-point reduction for one or two years.
How the money moves
At closing, the builder funds a buydown escrow account. Each month, the servicer applies those funds so you pay the reduced amount while the lender still receives the full payment at the note rate. If you sell or refinance before the buydown ends, remaining funds are usually handled by the program rules and are not paid to you as cash, as outlined in lender materials on temporary buydowns and servicing mechanics.
Unused buydown money is commonly applied to the loan at payoff rather than refunded to the borrower. You can verify this treatment in your closing package; sample disclosures show funds applied per investor rules, often as a principal curtailment at payoff, as seen in servicer disclosure examples.
How lenders approve you
Most lenders qualify you at the full note rate, not the temporary, reduced payment. This is important because it means you must be able to afford the payment after the buydown period ends. Compliance summaries explain this conservative approach to underwriting and consumer disclosures, as noted by Ballard Spahr’s mortgage banking update.
Why builders use buydowns in Aurora
Through much of 2025, 30-year mortgage rates have hovered in the mid-to-high 6 percent range, according to Freddie Mac’s Primary Mortgage Market Survey. Higher rates hit affordability, so payment-reducing incentives help buyers move forward without cutting the headline price.
Aurora continues to see active development and new-home supply across planned communities, supported by ongoing economic and construction trends highlighted by Aurora Economic Development Council resources. Builders often use buydowns to make quick move-in homes more attractive, especially when inventory is competitive.
Pros and trade-offs for Aurora buyers
Potential benefits
- Lower near-term payments that free up budget during your first years in the home.
- Flexibility if you expect income growth and want time to settle into the new payment.
Risks and considerations
- You will likely be underwritten at the full note rate, so a buydown may not help you qualify if ratios are tight, per lender compliance guidance.
- Payment shock can occur when the buydown expires. Some buyers who planned to refinance did not get a lower rate and felt the strain, as reported in recent consumer stories.
- Builders may price incentives into the deal. Compare the same dollars as a price reduction versus a buydown to see which wins for your timeline, using this side-by-side analysis framework.
How to evaluate a builder buydown
Use this quick process before you sign:
- Get the offer in writing. Ask for the exact buydown structure and dollar amount plus an itemized payment schedule by year. A simple temporary buydown calculator helps you sanity check the numbers.
- Confirm how you were qualified. Ask your lender in writing: “At what rate did you qualify me, and what monthly payment did you use?” Most lenders use the note rate, per industry compliance summaries.
- Compare total cost. Request a Loan Estimate for scenarios with and without the buydown. Model the breakeven using a neutral buydown comparison calculator.
- Verify the escrow details. Make sure the buydown and any leftover-funds handling appear on your Closing Disclosure, consistent with servicer disclosures.
What you might see in Aurora
In communities like Painted Prairie, The Aurora Highlands, Horizon Uptown, and High Point, builders often advertise incentives on quick move-in homes. You may see 2-1 buydowns, 3-2-1 options, or closing-cost credits. If the builder prefers a buydown over a price cut, ask for the dollar value and negotiate how those funds are used.
Budget for the reset
Plan for the post-buydown payment from day one. Build the higher payment into your 12 to 36 month budget and consider saving part of your early-year payment reduction as a reserve. Do not assume a refinance will be available at a lower rate on your timeline.
Get local guidance
New-build contracts and incentives come with fine print. You deserve clear answers and math you can trust. If you want a side-by-side analysis and help negotiating the best mix of price, credits, and rate options, connect with The Real Estate Experts of Denver. Our team helps you compare offers across Aurora communities and move forward with confidence.
FAQs
What is a 2-1 buydown on a new build?
- It is a temporary plan where your rate is 2 percentage points lower in year one and 1 point lower in year two, then it returns to the note rate for the rest of the loan.
Will a builder buydown help me qualify for the loan?
- Usually no; most lenders approve you at the full note rate payment, so you must be able to afford the post-buydown payment.
What happens to unused buydown funds if I refinance early?
- Remaining funds are typically applied to your loan at payoff, often as a principal credit, rather than refunded in cash; check your closing documents.
Is a buydown better than a price reduction in Aurora?
- It depends on your timeline; run both scenarios because a price cut can help long term while a buydown mainly lowers near-term payments.
Where are buydowns most common in Aurora new construction?
- You will most often see them on quick move-in or spec homes where builders want to improve monthly affordability without cutting the headline price.
