The Smaller, Smarter Rate Buydowns: 1-0 and Lender-Paid Options That Cost Less Than You Think

When people hear the phrase "rate buydown," they usually picture the big 3-2-1 or 2-1 structures that cost several points. But some of the most useful buydowns in today's market are the smaller ones. The 1-0 buydown and lender-paid options can lower your first-year payment for a fraction of the cost, and they barely get talked about.

As of late August and early September 2026, the average 30-year fixed mortgage rate is holding in the high-6% range, around 6.6% to 6.8%. Sellers are offering concessions at near-record levels, with about 44% to 46% of transactions including some form of seller credit. That combination is exactly why the smaller, cheaper buydown structures deserve your attention right now.

I'm going to walk you through the 1-0 buydown, how lender-paid buydowns work, and how to compare them to the bigger structures so you can pick what actually fits your budget and your goals.

What a 1-0 Buydown Actually Is

Let me start with the structure that confuses the most people, partly because it's so simple.

A 1-0 buydown lowers your mortgage rate by one full percentage point for the first 12 months only. Starting in year two, your payment steps up to the full note rate, and it stays there for the rest of the loan. Your loan amount and your loan term never change. Only the interest rate, and therefore your monthly payment, is reduced for that first year.

Here is the key detail that trips people up: you don't actually sign the note at the lower rate. You sign at the full note rate, and the buydown subsidy is deposited into a separate escrow account at closing. Each month for the first year, the lender draws from that account to make up the difference. You pay the reduced amount, and the lender tops it up from the buydown funds.

What does it cost? Unlike a permanent buydown, a 1-0 is not priced in points. Its cost is simply the actual monthly payment difference between the full-rate payment and the reduced payment, multiplied by 12. In other words, it costs one year of the savings it provides. Because the funds have to be in place at closing, it is usually the seller or the builder who covers it as part of the deal, which often means it costs the buyer nothing out of pocket.

An important note on qualifying: with a 1-0 (and temporary buydowns generally), you still qualify for the loan at the full note rate, not the discounted rate. That means the lower first-year payment is a real cash-flow boost, but it doesn't stretch what you can borrow. You need to be able to qualify on the payment you'll actually have in year two and beyond.

A Real-World Look at a 1-0 Buydown

Let me make this concrete. These numbers are an illustration based on a typical purchase in today's market, not a quote for your situation.

Imagine a $400,000 purchase with 10% down, giving you a $360,000 loan amount on a 30-year fixed mortgage at approximately 6.7%. That is right around where rates have been sitting in early September 2026.

• Full note rate payment (principal and interest): approximately $2,323 per month
• With a 1-0 buydown, year-one rate of 5.7%: approximately $2,089 per month
• Monthly savings in year one: roughly $234
• Total first-year savings: roughly $2,800

That roughly $2,800 is the cost of the buydown. It's the money the seller (or builder, or lender) puts into the escrow account to cover the difference. Because that amount is often well under a single point on a $360,000 loan, it's a small concession for a seller to offer and a meaningful cash-flow break for you in the year when you're also covering moving costs, furnishings, and all the other first-year expenses of homeownership.

When rates are around 6.7%, that $234 a month can be the difference between feeling stretched and feeling comfortable. It can help cover an unexpected repair, or it can simply give you breathing room while your household adjusts to its new budget.

Lender-Paid Buydowns: The Trade-Off Nobody Explains

The other structure that deserves more attention is the lender-paid buydown. This is different from a buyer-paid buydown, and understanding the difference is the whole game.

With a buyer-paid buydown, you pay discount points at closing (each point is 1% of the loan amount) to buy a lower interest rate. You spend more out of pocket up front, and in exchange you get a lower rate and lower payments for as long as you keep the loan.

With a lender-paid buydown, it works in reverse. The lender offers you a credit toward your closing costs or your rate in exchange for you accepting a slightly higher interest rate. This is often marketed as a "no-closing-cost" mortgage. You pay little or nothing at closing, but you pay more over the life of the loan because your rate is higher.

Neither version is good or bad on its own. The right choice depends on your cash position and how long you plan to keep the loan.

Choose a borrower-paid (lower rate) approach if: you plan to stay in the home long enough to reach the break-even point. If the points cost $6,000 but save you $120 a month, your break-even is 50 months, or just over four years. If you're going to be there for seven or ten years, buying down the rate is usually the smarter long-term move.

Choose a lender-paid (higher rate) approach if: you're cash-constrained at closing, or you expect to sell or refinance before the higher rate has time to cost you more than you saved. If you're only going to be in the home for two or three years, keeping your cash in your pocket at closing can make more sense than paying for a rate you won't benefit from for long.

How This Fits With the Bigger Buydowns

You're probably familiar with the larger temporary structures, so let me put the 1-0 in context with them.

• 1-0 buydown: rate drops 1% for the first year only. The least expensive option, costing roughly one year of savings. Best for buyers who want a modest, low-cost first-year boost.
• 2-1 buydown: rate drops 2% in year one and 1% in year two, then returns to the note rate. Commonly costs around two points, or the interest savings over those two years.
• 3-2-1 buydown: rate drops 3%, then 2%, then 1% over the first three years. The most expensive temporary structure, often running four to five points.
• Permanent buydown: uses prepaid discount points to lower the rate for the entire life of the loan. Each point typically costs 1% of the loan amount and lowers the rate by roughly 0.25%, though this varies by lender and market.

The common thread across all of them is that a buydown trades money now for lower payments. The question is always the same: how much money, for how long, and who's paying for it?

The 1-0 and the lender-paid options are the two places where that trade gets smallest and most flexible, which is exactly why they're worth considering in a 6.7% market where every dollar counts.

The Seller Concession Opportunity

Here's where this gets practical for negotiations. With sellers offering concessions in roughly 44% to 46% of transactions right now, asking for a buydown is very reasonable in most markets. And a 1-0 buydown is one of the easiest concessions for a seller to agree to, because it's so cheap relative to the price of the home.

On that $400,000 example, the 1-0 costs about $2,800, which is well under 1% of the purchase price. For many sellers, that's an easier yes than a larger price reduction, and it preserves their net proceeds. Meanwhile, you get a genuinely useful reduction in your first-year payments.

You can also combine structures. Some buyers use a seller-paid 2-1 buydown for the first two years and pair it with a lender credit to offset closing costs. The details depend on your lender, the program, and what the seller will accept, but the point is that these tools stack.

What to Watch Out For

Before you get excited, a few honest cautions.

Budget for the step-up. The whole appeal of a 1-0 is the lower first-year payment, but your payment goes up in year two. Make sure that step-up fits comfortably in your budget. If year one is only affordable because of the buydown, you may be setting yourself up for stress in year two.

Qualification is at the note rate. Lenders underwrite temporary buydowns at the full note rate. The buydown makes your early payments easier, but it doesn't let you qualify for a more expensive home.

Lender-paid means a higher rate. A lender credit that reduces your closing costs comes with a higher rate. Run the break-even math and think about how long you'll actually keep the loan. A lender-paid option is a great cash-flow tool, but only if it matches your timeline.

Not every program allows every combination. Concession limits vary by loan type. FHA, VA, and conventional loans each have different caps on how much sellers can contribute. Your loan officer should tell you exactly what your program allows.

How to Decide What's Right for You

Here's a simple way to think about it:

• If you want the smallest, cheapest early boost: ask about a 1-0 buydown, ideally seller-paid.
• If you want more first-year savings and can afford a bigger seller concession: a 2-1 or 3-2-1 buydown gives you two or three years of stepped-down payments.
• If you plan to stay in the home a long time and have cash at closing: a permanent buydown or borrower-paid points usually wins on total interest.
• If you're cash-constrained at closing or plan a shorter stay: a lender-paid, higher-rate approach keeps more money in your pocket today.

The honest answer for most people is a combination, and that's a conversation worth having with a loan officer who will walk through the actual numbers for your purchase price, your down payment, and your timeline.

The Bottom Line

The 1-0 buydown and lender-paid options are two of the most underused tools in a 6.7% market. One gives you a low-cost first-year break, usually paid for by the seller. The other trades a higher rate for cash in your pocket at closing. Both deserve a place in your negotiation strategy, right alongside the bigger buydown structures you've probably already heard about.

What matters most is running the numbers on your specific situation, not guessing. I'd love to help you do that. I'll map out the different buydown options, show you what each one would cost and what it would save you, and create a personalized video walkthrough so you actually understand the choice before you make it.

Author: Adam Heaney, Loan Officer, NMLS #283076, Emery Financial