Seller-Paid Buydown

What it is

A temporary buydown lowers the payment in the early years without changing the note rate. Sellers and builders use it as a concession that helps the buyer’s monthly cost without cutting the sale price.

The most common structure is 3-2-1: the effective rate is 3 percentage points lower in year one, 2 lower in year two, 1 lower in year three, and at the note rate from year four on. Shorter versions, 2-1 and 1-0, work the same way over fewer years.

Two things are worth knowing before you rely on one. You qualify on the permanent note rate, not the reduced first-year rate, so the buydown lowers your payment without expanding what you can borrow. And the relief ends on a fixed schedule, so the year-four payment is the one to budget against.

Who it fits

• Buyers who want a lower payment in the early years
• Buyers with first-year relocation or setup costs
• Anyone negotiating seller concessions in a slower market
• Move-up buyers expecting income to rise

How it runs

1. 1Negotiate The ConcessionYour agent negotiates the buydown as part of the purchase offer.
2. 2Lock The Permanent RateThe underlying note rate is locked in the usual way.
3. 3Seller Funds EscrowThe buydown amount is escrowed at closing.
4. 4Stepped PaymentsThe payment rises each year until it reaches the permanent rate.