The 3-2-1 is the 2-1's bigger sibling. Same mechanism, one more year, deeper first year cut. It costs noticeably more to fund, and in a handful of situations that extra cost is the difference between a listing that sells and a listing that sits.
The structure
Identical plumbing to a 2-1 buydown. The buyer closes on a standard fixed rate loan at the note rate. A lump sum goes into escrow at closing. The escrow subsidizes the payment for three years rather than two:
- Year one: the buyer pays as though the rate were three points below the note rate.
- Year two: two points below.
- Year three: one point below.
- Year four onward: the note rate, for the rest of the loan.
The loan itself is a fixed rate mortgage the entire time. Nothing adjusts. The subsidy simply runs out.
Why the first year number is the one that sells
With the market near seven, a three point subsidy puts the first year in the fours. That is not an incremental improvement over the competition. It is a number that stops the scroll.
This is the point of the structure. A buyer comparing two houses at the same price, one advertising a payment and one advertising a price, is not making a close decision. They are looking at the only listing in the search results that told them what it costs to live there.
And it is a direct answer to the builder down the street, who is advertising a rate in the fives and funding it exactly this way. See Why Builders Advertise Rates Instead of Discounts.
What it costs, and the cap problem
Three years of subsidy costs meaningfully more than two. The total lands high enough that on many transactions it runs into the buyer's seller contribution limit, which is the practical constraint rather than the seller's willingness.
Those limits move with loan type, occupancy and loan-to-value. A conventional owner occupied buyer at a low down payment has far less room than the same buyer at a higher down payment. An investor has less room than an owner occupant. Run the actual cap against the actual buyer's actual loan before anyone signs. See Seller Concession Limits by Loan Type.
Two consequences worth planning for:
The 3-2-1 may not fit. If the cap will not carry it, the 2-1 usually will. Know that before you advertise a number.
The buydown competes with closing cost help. Both come out of the same contribution room. A seller who agrees to a 3-2-1 and then agrees to cover the buyer's title and escrow charges has frequently agreed to more than the loan permits, and somebody is giving something back in week three.
When the 3-2-1 earns the extra money
You need a headline number, not a better number. If your competition is a builder advertising a rate, matching their payment is the job. A 2-1 may land close. A 3-2-1 lands under.
The buyer is early in a rising income. A professional two years from a materially higher income benefits from three years of glide rather than two. The step up arrives when their income has caught up to it.
The listing is genuinely stale and you are out of price moves. If you have already reduced several times and the showings did not come, another reduction is unlikely to be the one that works. Changing the category of the offer is more likely to be. See Six Price Reductions Later.
You are protecting comparables. Sellers in a subdivision where they, their neighbors and their own next purchase all depend on the comp set have a real reason to hold price and spend on financing instead. Builders think about this constantly. Resale sellers rarely do, and should.
When to use something else
The buyer is tight on qualifying, not on cash flow. A temporary buydown generally does not lower the qualifying rate. If the buyer cannot be approved at the note rate, three years of subsidy does not fix it. The tool for that problem is a program that qualifies the buyer at the reduced rate, which is the design of List & Lock.
The buyer is staying thirty years. Money spent on three years of relief is money not spent permanently lowering the rate. Over a long hold the permanent reduction usually wins. See Permanent vs Temporary.
The contribution cap is tight. Fit the structure to the room you have, not the room you wish you had.
Before you advertise a 3-2-1
- Get the cost calculated on your actual loan amount, not a rule of thumb.
- Confirm the contribution cap for the buyer type you expect.
- Confirm the loan program permits it for the occupancy and property type.
- Decide what the year four payment is and be ready to say it out loud.
- Put the payment in the marketing, with the disclosure language that makes it compliant rather than a problem.
Why bring this to us
- We run the numbers before the listing goes live, so the figure in your marketing is a real locked rate rather than a hope.
- Broker model. Multiple investors, which matters when one lender's buydown terms do not fit the file.
- We will sit in the listing appointment with you and explain the structure to the seller directly.
- You talk to the principal. Ricky Khamis is President of EPiQ Lending, NMLS #173141, lending in Arizona since 1999 and a 2025 Presidents Club Winner at CMG Home Loans. Direct line: (480) 999-9842.
EPiQ Lending is NMLS #1936984, at 7975 N. Hayden Road, Suite A-101 in Scottsdale. Verify all of it before you trust any of it: Ricky's EPiQ Lending profile, the Scottsdale branch, and the license itself at NMLS Consumer Access. Hold every lender to that standard, including us.
Send me the address and the price before the next reduction, and I will show you what a concession pointed at the payment does instead.
Equal Housing Opportunity. This is general information, not a commitment to lend or an offer to extend credit. Buydown structures and any figures shown are illustrative, derived from a structure applied to an assumed note rate, and are not an offer or a quote. Actual rates depend on credit approval, loan program, occupancy, loan amount, down payment, property type and market pricing at lock. Seller contribution limits vary by loan type, occupancy and loan-to-value and change over time; confirm current limits against the buyer's specific loan. Rates, terms and program guidelines change and depend on credit approval, property appraisal and other qualifying factors. Not all applicants will qualify.
Looking at a specific home? Send me the address and I will run the numbers: rickykhamis.com/analyze
