Yes. VA allows temporary buydowns, including the 2-1 buydowns San Antonio builders often advertise, as long as the loan is fixed-rate and the buydown meets VA’s rules. A builder-paid buydown counts as a seller concession, so it falls under VA’s 4% concession limit, and your lender still has to qualify you at the full payment. Here’s how it works, using VA’s own rules and example.
Brock Bremmer | U.S. Air Force Reserves Veteran | Real Estate Agent | eXp Realty | San Antonio Metro Area
VA Loan & New Construction Specialist
Also see: VA Loans on New Construction | Builder Lenders vs Outside Lenders | VA Loan Guide for San Antonio
What Is a 2-1 Buydown?
A temporary buydown is money deposited into an escrow account at closing to lower your payment for the first years of the loan. Each month, part of that account is applied to your payment, so you pay less while the money lasts.
In a 2-1 buydown, your effective rate is 2 points below the note rate in year one and 1 point below in year two. From year three on, you pay the full note rate. VA says temporary buydowns can last one to three years, and the common structures are 3-2-1 and 2-1.
A temporary buydown isn’t the same as buying down your rate permanently with discount points. With a temporary buydown, your note rate never changes. Only your share of the payment does, and only for a set period.
What Are VA’s Rules for Temporary Buydowns?
VA’s temporary buydown guidance and Chapter 7 of the VA Lender’s Handbook (M26-7) set these rules:
- Fixed-rate only: Temporary buydowns can be used with fixed-rate VA loans, including purchases
- One to three years: The buydown has to run at least one year and no more than three
- Gradual steps: Reductions happen once a year, and the payment can’t go up by more than the equivalent of a 1 percentage point rate increase at each step
- Who can fund it: The seller, lender, builder, or Veteran
- Separate escrow: The money has to sit in a separate escrow account and can’t go back to whoever funded it
- Written agreement: The lender has to give you a written explanation showing the property address, length of the buydown, amount, bought-down rates, original rate, and who holds the funds, signed by you and any co-borrowers
VA’s handbook also says lenders can’t fund a buydown by charging you an above-market interest rate.
What Does a 2-1 Buydown Look Like in Real Numbers?
VA’s example uses a $300,000, 30-year loan at a 5% note rate with a 2-1 buydown:
- Year 1 (3% effective): You pay $1,265, and the buydown account pays $345, for a total of $1,610
- Year 2 (4% effective): You pay $1,432, and the buydown account pays $178
- Years 3–30 (5%): You pay the full $1,610
Those are principal and interest only. Taxes, insurance, and any HOA, PID, or MUD costs come on top.
Using VA’s numbers, the buydown account needs about $6,276 to cover those two years ($345 × 12 plus $178 × 12). That’s the money the builder would put into escrow at closing.
Does a Builder’s Buydown Count Toward VA’s 4% Limit?
Yes. VA says temporary buydowns provided by the builder or seller are seller concessions, and seller concessions are capped at 4% of the reasonable value shown on your Notice of Value.
VA’s handbook lists what counts as a concession, including:
- Paying the VA funding fee
- Prepaying property taxes and insurance
- Funding a temporary buydown
- Paying off your debts
- Discount points beyond what’s normal for the market
Normal closing costs aren’t concessions. VA also doesn’t limit how much of your closing costs a seller or builder can pay.
Here’s where this matters on a new build. Say a home appraises at $300,000, so 4% is $12,000. If the builder funds the $6,276 buydown from VA’s example and also pays a first-time, zero-down funding fee of 2.15% ($6,450), that’s $12,726 in concessions, which is over the limit. Something would have to change, such as a smaller buydown or the funding fee being financed instead. This is only an illustration, and your lender makes the call on your file.
If you receive VA disability compensation, you’re generally exempt from the funding fee, which frees up room under the 4% limit.
How Do You Qualify With a Buydown?
VA requires lenders to qualify you at the full payment you’ll owe after the buydown ends, not the year-one payment. In VA’s example, that’s $1,610 for principal and interest, not $1,265. An underwriter may treat the buydown as a compensating factor, but it won’t lower the payment you’re approved on.
That’s a good thing. It means year three shouldn’t be a surprise.
What Happens If You Refinance or Sell During the Buydown?
VA says any money left in the buydown account has to be applied to the loan balance if the loan is paid off, foreclosed, or settled through a short sale or deed in lieu. You don’t get it back as cash, and it doesn’t go back to the builder.
If someone assumes your VA loan, the remaining funds stay with the loan and keep paying under the buydown agreement for the new borrower.
What Should You Ask a San Antonio Builder About a Buydown?
Before you pick a buydown over another incentive, ask:
- Is the buydown available with an outside lender, or only with the builder’s lender?
- What’s the note rate, and what’s the full payment after year two?
- How does the buydown cost compare with a price reduction or closing cost credit?
- With the funding fee and other concessions, are you under VA’s 4% limit?
I cover more of these questions in 5 Questions You MUST Ask Before Buying a New Construction Home in San Antonio.
Frequently Asked Questions: VA Loans and 2-1 Buydowns
Can a builder pay for a 2-1 buydown on a VA loan?
Yes. VA says a temporary buydown can be funded by the seller, lender, builder, or Veteran. A builder- or seller-funded buydown counts as a seller concession, so it falls under VA’s 4% of reasonable value limit.
Do you qualify for a VA loan at the bought-down rate?
No. VA requires lenders to qualify you at the full monthly payment you’ll owe after the buydown ends. An underwriter may consider the buydown as a compensating factor.
Ready to Compare VA Incentives on a New Build?
Brock Bremmer with eXp Realty is a U.S. Air Force Reserves veteran who has helped buyers and sellers close 120+ homes across the San Antonio metro. He helps VA buyers compare builder incentives, track seller concessions, and coordinate with VA lenders on new construction in San Antonio, New Braunfels, and Boerne.
- 📞 Call or text: 210-501-5088
- 📧 Email: [email protected]
- 📅 Schedule a free consultation
Also see: How to Use a VA Loan in San Antonio | Buying a New Build Before Your PCS | Why Your Payment Goes Up After a New Build
Sources: VA Home Loans, Temporary Buydowns; VA Lender’s Handbook M26-7, Chapter 7 (Temporary Buydowns) and Chapter 8 (Seller Concessions); VA.gov, VA Funding Fee and Loan Closing Costs.