So if your payment drops $200/mo the 1st year (at 6% vs 8% interest), and the second year you are saving $100/mo (at 7% vs 8%), you will need to come up with (12x200)+(12x100)=$3600 up front to qualify at the lower rate.

In other words, this program does not save you any money, but does allow you to qualify for more house. If you do not have the cash to pay for the buydown, you can do a lender funded buydown, going higher on the interest rate but having the lender pay the buydown fee. Following the example above, you could go with an interest rate of 8.625% and qualify at 6.625% with no out of pocket cost for the buydown. Buydowns are available on fixed loans and some hybrid ARMs.