Houston New Construction 2026: 2-1 Buydown vs Permanent Rate

A Katy or The Woodlands sales office will often lead with a 2-1 temporary buydown. The payment in year one looks like the win. The note rate, the appraisal, and what happens in month 25 are the file. If you are comparing a builder incentive to a lower permanent rate, run both on the same purchase price and the same cash to close.

Jimmy Rushing, mortgage broker with Your TEXAS Home Loan Guy / Mpire Financial (NMLS #2520082; company NMLS #2108504), walks Houston new-construction contracts every week – Katy, Cypress, Spring, The Woodlands, Pearland, Sugar Land, and the northwest metro. This is educational. It is not a builder quote or a lock. Start at yourtexashomeloanguy.com or call 832-241-6605.

Temporary 2-1 buydown vs a permanent rate

A 2-1 buydown means the payment is calculated two percentage points below the note rate in year one and one point below in year two. Year three and after, you pay the full note rate. The subsidy usually comes from builder credit, seller credit, or your own cash sitting in an escrow that the servicer draws down. It is not a magic lower rate. It is prepaid interest for 24 months.

A permanent buydown (discount points) lowers the note rate for the life of the loan. That costs cash at closing. A lower note rate from a different investor, with fewer points, can beat a flashy 2-1 if you keep the house past year two – which most Houston new-construction buyers do.

Run the note rate. Ignore the year-one payment until you know the rate that starts in month 25.
Run the credit. Ask whether the builder credit can instead buy a permanent rate, pay closing costs, or buy a rate cap on an ARM – and which of those actually funds.
Run the recoup. If the 2-1 saves $400 a month for 24 months ($9,600) and the permanent option costs $6,000 in points for a lower note rate, the permanent option often wins if you stay.

What the builder incentive is actually paying

Sales offices bundle “we will pay your buydown” with design-center upgrades, HOA incentives, and a preferred-lender credit. Preferred-lender credits are real money. They also lock you into that lender’s overlay, appraisal panel, and lock desk. Jimmy’s job is to put the preferred-lender worksheet next to an independent broker worksheet on the same contract price.

If walking away from the preferred lender costs you $8,000 in builder credit, that $8,000 has to show up as a better rate, better costs, or a file that can actually close (self-employed, gift, condo/HOA, or a longer build). If it does not, use the preferred path and still have Jimmy read the CD. A credit you lose at the design center is not a savings. It is a different purchase price.

Appraisal, HOA, and Houston new-build overlays

New construction in Katy and Cypress often sits in master-planned communities with HOA dues, MUD taxes, and a lot premium. The payment you were quoted in the model home may omit MUD or undervalue HOA. Underwriters use the full PITIA. An appraisal that comes in light against builder comps is a different problem: you cannot finance a gap the appraiser will not support unless you bring cash or the builder cuts price.

Condo-style or townhome new builds in Spring and The Woodlands add project-approval risk. Ask whether the project is warrantable before you spend three months in the design center.

Lock timing on a 8- to 12-month build

A 30-day lock does not cover a house that is still a slab. You need a long lock, a float-down, or a construction-to-permanent structure. Each has a cost. Jimmy will say which one matches the builder’s estimated completion – and what happens if the builder slips 60 days, which is common in the northwest metro after weather delays.

If you are self-employed, the income docs have to still be valid at closing. A 12-month bank-statement set that is stale at funding means a refresh. Plan that on day one, not at walkthrough.

Neighborhood notes

Katy / Cinco Ranch / Cross Creek. High volume of 2-1 offers. Compare MUD + HOA before you celebrate the year-one payment.
Cypress and Tomball. Longer commutes, more lot premiums. Confirm the appraisal can support the elevation and options you just selected.
Spring and The Woodlands. Mix of production builders and semi-custom. Project and HOA documents matter as much as the rate.
Pearland and Sugar Land. Established MUDs and school-zone premiums. A buydown does not fix a payment that is tight after taxes.

How to use Jimmy on a builder contract

Send the lot contract, the incentive sheet, and the preferred-lender quote (all pages).
Jimmy builds two columns: take the 2-1 vs apply the same credit to a permanent rate or costs.
He flags MUD, HOA, appraisal, and lock length before you pick cabinets.
You choose. He does not need you to fire the preferred lender if that credit is the winning number.

Start at yourtexashomeloanguy.com or call 832-241-6605. Subject line “new construction” plus the community name. If the builder already assigned a preferred lender, still send Jimmy the same packet so you can see the trade in writing before you pick cabinets.

Frequently asked questions

Is a 2-1 buydown the same as an ARM?

No. A 2-1 is a temporary subsidy in front of a fixed note rate (usually 30-year fixed). An ARM changes the note rate after the initial period. Do not mix the two in a sales-office conversation.

Can I keep the buydown if I refinance in year two?

Unused buydown funds are often applied per the note and servicer rules. Do not count on a refund. If you plan to refinance quickly, a permanent credit or a lower note rate is usually cleaner.

What if the appraisal is short?

You bring cash, the builder cuts price, or the contract dies per its appraisal clause. A buydown does not fill an appraisal gap.

Do I have to use the builder’s lender?

Only if you want that specific credit. Have Jimmy price the independent path on the same day so you can see the real trade.

How do I start?

Call 832-241-6605 or use yourtexashomeloanguy.com. Bring the contract and the incentive sheet.

Jimmy Rushing, MBA – Your TEXAS Home Loan Guy – Mortgage Broker – Mpire Financial – NMLS #2520082 – Mpire Financial NMLS #2108504 – Greater Houston – https://yourtexashomeloanguy.com/ – 832-241-6605

Educational information for Texas borrowers. Not a rate guarantee, builder quote, or commitment to lend. Incentives, MUD, HOA, and lock terms are contract-specific. Jimmy Rushing is a mortgage broker with Mpire Financial. NMLS #2520082. Mpire Financial NMLS #2108504. Equal Housing Opportunity.