The Same Dollars, Three Very Different Outcomes
With mortgage rates back above 7 percent, "ask the seller for a rate buydown" has become standard advice. Far fewer buyers can say what a buydown is actually worth compared with simply asking for a lower price. They are not equivalent, and picking the wrong one can cost you thousands.
Here is how to compare them with real numbers.
The Three Ways to Spend a Concession
When a seller agrees to give up $10,000, that money can go toward three things.
A price reduction. The contract price drops, so your loan is smaller from day one.
A temporary buydown (like a 2-1). The seller funds an escrow account that lowers your rate by 2 points in year one and 1 point in year two. After that, your payment returns to the full note rate.
A permanent buydown (discount points). The money buys a lower interest rate for the life of the loan.
The Math
These figures are illustrations, not quotes. They assume a $400,000 loan on a 30-year fixed mortgage at a 7.00 percent note rate, which is close to where weekly averages have recently been. Your lender's actual pricing will differ.
Baseline payment (principal and interest): about $2,661 per month.
Option 1, a $10,000 price reduction. The loan drops to $390,000 and the payment falls to about $2,595, roughly $66 per month less. You also owe $10,000 less from the first day.
Option 2, a permanent buydown with the same $10,000. If the lender prices roughly 2.5 points to lower the rate by about half a percent, you move from 7.00 to 6.50 percent. The payment falls to about $2,528, roughly $133 per month less. Your balance stays at $400,000.
Option 3, a 2-1 temporary buydown. In year one you pay at 5 percent, about $2,147 per month. In year two you pay at 6 percent, about $2,398. From year three on, you pay the full $2,661. Total savings across the first two years come to roughly $9,300.
So Which One Wins?
It depends on how long you keep the loan.
In these assumptions, the price reduction comes out ahead for roughly the first seven years, because the lower balance is worth real money. After that, the permanent buydown pulls ahead as its lower rate keeps compounding in your favor. The 2-1 delivers the most cash-flow relief up front, but the benefit ends after two years.
The exact crossover moves with the lender's price per point, so ask for that number in writing before you decide.
The Refinance Question
This is the factor most buyers overlook. If you expect to refinance when rates come down, any points you paid for a permanent buydown are largely wasted, because you're replacing that loan. In a market where many buyers are planning to refinance, a price reduction or a 2-1 buydown usually fits better than permanent points.
If you plan to stay in this loan for a decade or more, or you doubt rates will fall meaningfully, a permanent buydown deserves a serious look.
What Each Option Does for Qualifying
Lenders generally qualify you at the full note rate for a temporary buydown, so a 2-1 helps your cash flow but not your qualification. A price reduction lowers your loan amount and can help. A permanent buydown lowers the rate you're qualified at, which can also help. If your debt-to-income ratio is tight, that difference matters.
What the Seller Sees
Sellers often prefer to give concessions rather than cut price, because the higher sale price protects the neighborhood's comparable sales and their own net. That's useful to know, because a seller who won't move on price may still agree to a buydown. There are limits on how much a seller can contribute, and they vary by loan type and down payment. Conventional loans cap contributions on a sliding scale, FHA and VA have their own limits, and your lender will confirm the exact ceiling for your loan.
Questions to Answer Before You Choose
How long do you realistically expect to keep this loan?
Do you plan to refinance if rates drop?
Is your constraint qualifying, monthly cash flow, or cash to close?
And how much room does the seller actually have to give?
How I Approach It
Before we write an offer, I ask your lender for the price per point and the cost of a 2-1 in writing, then run the price cut, the permanent buydown, and the 2-1 side by side for your loan amount. That tells us what to ask for. I also match the request to the seller's situation. A fresh listing and a home that has sat for 60-plus days call for different asks, and I structure the offer accordingly.
Common Mistakes
Buyers ask for a buydown without comparing it to a price reduction. They pay for permanent points and then refinance within a few years. They assume a 2-1 helps them qualify. And they don't ask the lender for the price per point, so they negotiate without knowing what the concession actually buys.
FAQ: Rate Buydowns
Q: What is a 2-1 buydown?
A: A temporary buydown that lowers your rate by 2 percentage points in year one and 1 point in year two, funded upfront, usually by the seller or builder. In year three, your payment returns to the full note rate.
Q: Is a buydown better than a price reduction?
A: Neither is always better. A price reduction tends to win if you'll sell or refinance within several years, while a permanent buydown wins if you'll keep the loan long term. Run both with your lender's actual pricing.
Q: Does a buydown help me qualify for a bigger loan?
A: A temporary buydown generally doesn't, since lenders qualify you at the full note rate. A permanent buydown can, because it lowers the qualifying rate.
Q: Can the seller pay for my buydown?
A: Yes, as a seller concession, within the limits for your loan type and down payment.
Q: What happens to my buydown if I refinance?
A: A temporary buydown simply ends with the old loan. Points paid for a permanent buydown are generally lost when you refinance.
Q: How many points does it take to lower my rate?
A: It varies by lender and day. A common rule of thumb is about 0.25 percent per point, but get the actual price in writing.
A concession is only valuable if it's spent the right way. I help buyers compare price reductions, temporary buydowns, and permanent points using their actual loan amount and their realistic plans, so the negotiation targets what genuinely saves them the most.
If you're preparing an offer and want to see the numbers side by side, let's walk through them together.
(512) 217-3961
[email protected]
— Maria Aguirre
Mi Casa Agency | Keller Williams Lake Travis
