Seller-Paid Buydowns
A Smart Way to Lower Your Rate Upfront
When sellers (or builders) contribute cash at closing to “buy down” a buyer’s mortgage rate, both sides can win: the home moves quickly, and the buyer enjoys smaller payments during the costly first years of ownership. This strategy—called a seller-paid buydown or seller rate buydown—is surging in popularity as interest rates stay elevated.
Get Your QuoteWhat Is a Seller-Paid Buydown?
A seller-paid buydown is a form of seller concession: the seller prepays a portion of the buyer’s interest so the lender can offer a temporarily (or permanently) reduced rate.
- Temporary buydown – The rate steps up over time (e.g., 2-1 buydown or 3-2-1 buydown).
- Permanent buydown – The seller pays discount points to lower the rate for the life of the loan (often just called “points”).
How a Temporary Buydown Works
| Buydown | Year 1 | Year 2 | Year 3 | Year 4+ |
|---|---|---|---|---|
| 2-1 Buydown | Rate ↓ 2% | Rate ↓ 1% | Full note rate | Full note rate |
| 3-2-1 Buydown | Rate ↓ 3% | Rate ↓ 2% | Rate ↓ 1% | Full note rate |
Example: With a 2-1 buydown on a 6.5 % loan, the buyer pays 4.5 % in year one and 5.5 % in year two before moving to 6.5 %.
The seller’s upfront deposit covers the difference in interest for those first years and is placed in an escrow account, making monthly payments lower for the buyer.
Cost-to-Seller vs. Price Reduction
Recent analyses show a buydown often costs the seller half—or less—than a big price cut yet delivers larger monthly savings to the buyer during the buydown window.
That’s why builders frequently use buydowns instead of slashing asking prices in slow markets.
Buyer & Seller Benefits
For Buyers
- Lower initial payments for easier budgeting
- Smoother transition into higher payments as income grows
- Qualify more easily by reducing the debt-to-income (DTI) ratio in the first years
For Sellers
- Market the home with a “below-market rate” headline
- Move inventory without permanent price reductions
- Potentially pay less than they would in a large price concession
Eligibility & Guidelines
| Factor | Typical Requirement |
|---|---|
| Loan programs | Conventional, FHA, VA, USDA (lender specific) |
| Down payment | Standard program minimums still apply |
| Seller contribution cap | 3 – 9 % of sale price, depending on loan type |
| Escrow account | Holds buydown funds; unused balance reduces principal if the loan is paid off early |
Seller-Paid Buydown vs. HELOC or ARM
| Feature | Seller-Paid Buydown | Adjustable-Rate Mortgage | HELOC for cash cushion |
|---|---|---|---|
| Up-front cost | Paid by seller | None | None |
| Rate certainty | Fixed note rate after buydown period | Rate adjusts with market | Variable line rate |
| Purpose | Lower initial payments | Potential long-term savings | Access to equity |
How to Secure a Seller-Paid Buydown
- Negotiate the buydown in your purchase offer (include 2-1 or 3-2-1 details).
- Confirm lender approval and exact seller-contribution limits.
- Seller funds the buydown at closing—credited to a dedicated escrow account.
- Enjoy reduced payments; plan for step-ups by budgeting future income or refinancing if rates fall.
Seller-Paid Buydown FAQs
A seller-paid buydown is a mortgage financing strategy where the seller contributes funds to temporarily lower the buyer’s interest rate—typically for the first 1 to 3 years of the loan. This helps reduce monthly payments early on and makes homeownership more affordable up front.
With a 2-1 buydown, your interest rate is reduced by 2% the first year and 1% the second year, before reverting to the full rate in year three. A 3-2-1 buydown follows a similar structure over three years. These temporary savings can help ease the transition into a mortgage, especially for first-time buyers or those waiting for future income increases.
The seller typically funds the buydown as part of a negotiated seller concession. The funds are placed in an escrow account at closing and used to offset your monthly payments for the designated buydown period.
Yes! You’re free to refinance at any time. In fact, many buyers use a buydown to get lower payments initially while waiting for rates to drop—then refinance into a permanent lower rate when the timing is right.
Ready to Leverage a Buydown?
Salute Mortgage’s loan experts structure seller-paid buydowns, calculate true savings, and coordinate the escrow—so you (and the seller) close with confidence.
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