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How do Mortgage Rate Buydowns Work for New Construction Homes?

A mortgage rate buydown is a strategic upfront payment that lowers your loan’s interest rate and initial monthly payments for a specific period. For those working with custom home builders with financing in Colorado, this can significantly ease early cash flow during a new-construction project.

We typically see two main structures for these buydowns:

  • Temporary Buydowns: A common example is the 2-1 structure. In this scenario, your interest rate is reduced by two percentage points during the first year and one percentage point during the second year before reaching the permanent note rate in the third year.
  • Permanent Buydowns: These are often funded through discount points and lower the interest rate for the entire duration of the loan.

These options pair exceptionally well with a one-time close construction loan, as they keep payments manageable during the build phase. Once the project is finished and converts to a construction-to-permanent loan, the temporary buydown period eventually concludes and payments adjust accordingly. While builders or sellers often fund these buydowns as incentives, you must confirm all final costs and terms with your lender in writing.

As family-owned and operated since 1996, we understand the importance of matching the right financing with a solid foundation. While we provide this general information, we recommend consulting a licensed financial professional for definitive loan terms. All information provided is for general purposes, and project costs are determined via a custom-quote process following an on-site inspection.


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