A seller-paid buydown lowers a buyer’s mortgage interest rate, either temporarily or permanently, with the seller covering the cost at closing. This strategy is a powerful negotiation tool, benefiting buyers with reduced monthly payments and helping sellers attract offers without cutting the listing price. Instead of asking for a price cut, buyers should ask for a buydown instead of a price cut as it often provides greater savings in the initial years.
What Is a Seller-Paid Buydown?
A seller-paid buydown is a financing strategy in which the seller contributes money at closing to lower the buyer’s mortgage interest rate. This contribution is usually structured as a seller concession and is applied directly to reduce the borrower’s interest rate—either temporarily or permanently.
There are two main types of buydowns:
1. Temporary Buydown
- Lowers the buyer’s interest rate for the first 1–3 years of the mortgage.
- Most common structures:
- 2-1 Buydown: Rate is 2% lower in Year 1, 1% lower in Year 2, and returns to the full rate in Year 3.
- 3-2-1 Buydown: Rate is 3% lower in Year 1, 2% in Year 2, 1% in Year 3, and full rate thereafter.
- Helps buyers ease into their mortgage with lower payments in the early years.
2. Permanent Buydown (Discount Points)
- The seller pays discount points at closing to permanently reduce the buyer’s interest rate.
- Generally, 1 point = 1% of loan amount and reduces the rate by about 0.25%.
- Provides consistent payment relief over the life of the loan.
Real-World Example: 2-1 Buydown vs. Price Reduction
Let’s say you’re buying a home for $400,000 with a 30-year fixed loan at a standard 7% interest rate.
Without Buydown:
- Monthly payment: $2,661 (principal and interest)
Scenario A: 2-1 Buydown
| Year | Rate | Payment | Monthly Savings |
| 1 | 5% | $2,147 | $514 |
| 2 | 6% | $2,398 | $263 |
| 3+ | 7% | $2,661 | $0 |
Total Savings Over 2 Years: ≈ $9,300
Seller’s Cost at Closing: ≈ $9,300 (paid as a concession)
Scenario B: $10,000 Price Reduction
- New loan amount: $390,000
- New payment at 7%: $2,595
- Monthly Savings: $66
Over 2 years, you save: $1,584
Result: The buydown gives you 6 times more savings in the first two years compared to a price cut of the same value.
When to Use a Seller-Paid Buydown
Buydowns are particularly useful in the following situations:
- Buyers facing affordability barriers: Lower early payments help you qualify more easily or manage other costs like repairs or furnishing.
- Slow or shifting markets: Sellers may be open to incentives that help them close the deal without dropping the price.
- New construction homes: Builders often offer buydowns as part of their sales package to keep prices high but payments low.
- Buyers planning to refinance later: If interest rates drop in the next 1–3 years, a temporary buydown offers short-term relief before refinancing.
How to Negotiate a Seller-Paid Buydown
Step 1: Understand Your Financial Goals
Before entering negotiations, know your numbers:
- How much can you afford monthly?
- How long do you plan to stay in the home?
- Do you expect to refinance in the next few years?
This will help you determine whether a temporary or permanent buydown makes more sense.
Step 2: Talk to Your Lender
Ask your loan officer:
- What buydown structures are available for your loan type (FHA, VA, Conventional)?
- How much would a 2-1 or 3-2-1 buydown cost?
- What would the seller need to contribute?
Ask for a buydown worksheet showing payment comparisons and total costs.
Step 3: Work With Your Agent to Structure the Offer
Instead of asking for a lower sale price, request a seller concession for the buydown. Here’s a sample clause you could include in your offer:
“Seller agrees to pay up to $9,500 toward a temporary interest rate buydown for the buyer’s mortgage, to be applied at closing.”
- Be specific
- Include a dollar amount
- Ensure your agent and lender are aligned on how the concession will be used
Step 4: Explain the Value to the Seller
Especially in a competitive or slow market, sellers are more likely to consider alternatives to a price cut. Help them see how a buydown benefits both parties:
- Buyer wins: Lower monthly payments, improved affordability, stronger purchase confidence
- Seller wins: Keeps sales price intact, protects neighborhood comps, and often costs less than a major price drop
Pro tip for agents: Bring a side-by-side comparison chart showing the impact of a buydown versus a price cut.
How Seller-Paid Buydowns Work in Real Life
First-Time Buyer in a High-Rate Market
Maria is buying her first home but is stretched on monthly payments. Her agent negotiates a 2-1 buydown funded by the seller. In Year 1, her monthly payment is $2,147 instead of $2,661—a savings of $514/month, freeing up her budget for home expenses.
Builder-Sponsored Buydown
A builder with multiple unsold homes offers a 3-2-1 buydown as a closing incentive. The builder avoids price reductions while providing buyers with attractive payment savings in the first three years.
Real Estate Agent Strategy
In a softening market, an agent markets a listing with a $10,000 seller-paid buydown instead of a price reduction. Buyers are intrigued by the lower payments, and the home sells faster—while the seller retains more of their equity.
Tips for Buyers and Agents
Buyers:
- Use buydowns as part of your negotiation, especially on homes sitting longer on the market.
- Focus on your monthly budget—buydowns can provide meaningful early relief.
- Don’t just compare home prices—look at total monthly affordability.
Real Estate Agents:
- Position seller-paid buydowns as an alternative to price cuts in listing appointments.
- Use the strategy to attract more buyers in your marketing.
- Educate clients with clear visuals and numbers—not just real estate jargon.
Final Takeaways
In a market where mortgage rates have pushed many buyers to the sidelines, seller-paid buydowns are a smart solution for buyers, sellers, and agents alike.
They offer:
- Immediate payment relief for buyers
- A competitive edge for sellers without slashing prices
- A strategic tool for real estate professionals to close more deals
When structured correctly, a buydown can offer greater financial impact than a price reduction of the same amount. And when you’re armed with the right knowledge and negotiation approach, you can make this tool work in your favor—whether you’re buying your first home or selling a portfolio property.
