What Is a Rate Buydown and Can the Seller Pay to Lower My Rate?

When rates feel high, the monthly payment is often the number that decides whether a home works for you. A buydown is one way to bring that payment down without changing the price.

I'm Jeanette Nelson, a REALTOR® with Jeanette Nelson Real Estate, Keller Williams Realty, serving Orange County, Huntington Beach, Costa Mesa, Fountain Valley, and surrounding areas. This is general information, not lending advice. Your lender will tell you what a buydown costs on your loan and whether it fits your plan.

A permanent buydown uses discount points. The Consumer Financial Protection Bureau (CFPB) explains that points are an upfront payment at closing that lowers your interest rate. One point equals 1% of the loan amount, so one point on a $600,000 loan would cost $6,000.

How much each point lowers the rate varies by lender, loan type and the market that day. The CFPB says points can be a good choice if you plan to keep your loan for a long time. If you think you might sell or refinance in a few years, the upfront cost may never pay for itself.

A simple way to think about it: divide the cost of the points by the monthly savings. That tells you roughly how many months it takes to break even. Ask your lender to show you quotes with and without points so you can compare.

A temporary buydown lowers your rate for the first years of the loan, then steps up to the full note rate. You may hear it called a "2-1 buydown," where the rate starts two points lower in year one, one point lower in year two, then reaches the full rate in year three.

Fannie Mae's Selling Guide sets clear limits on these for conventional loans it buys:

• The rate reduction cannot be more than 3 percentage points.
• The rate cannot rise more than 1 point per year.
• The buydown period cannot be longer than 3 years.
• The lender must qualify you at the full note rate, not the lower starting rate.

That last point matters. A temporary buydown helps your budget in the early years, yet it does not help you qualify for a bigger loan. Plan for the full payment from day one.

Often, yes. Your offer can ask the seller to put money toward a buydown or toward your closing costs. Whether that request gets accepted depends on the home, the market and the seller.

Loan programs cap how much the seller can contribute. Fannie Mae calls these interested party contributions, and it states that the cost of a seller-paid buydown counts toward the limit. For a primary home or second home, the caps are:

• 3% of the price or appraised value, whichever is lower, when your loan-to-value is above 90%
• 6% when your loan-to-value is 75.01% to 90%
• 9% when your loan-to-value is 75% or less

Other loan programs have their own limits, so ask your lender for yours before we write the offer. A credit that goes over the limit can create problems late in escrow.

It depends on your goals. A lower price reduces your loan amount and can reduce your property tax base. A buydown targets the monthly payment instead.

Here is how I'd suggest comparing them:

1. Ask your lender to run your payment both ways with the same dollar amount.
2. Think honestly about how long you expect to keep the loan.
3. Check your rate lock timing. The CFPB notes that locks are usually offered for 30, 45 or 60 days, and extensions can be costly, so your buydown and your lock need to line up with your closing date.

You may also find our guides on closing costs and rate locks helpful as you plan.

If you'd like to talk through whether a buydown, a price adjustment or a closing cost credit makes the most sense for your first home, I'm happy to help you plan it before you write an offer. Call or text me at 714.366.8575 | DRE: 01397168, or contact me.