If a seller has money to give, is a price cut or a rate buydown better for the buyer?
For the monthly payment, a buydown usually helps more in the first year or two. For the long run and the appraisal, a price cut can be the better deal. The answer depends on how long the buyer will keep the loan.
Seller concessions are common right now. In Sachse, Wylie, Murphy and Lavon, about 60% of closed sales include seller-paid concessions and that share is climbing. How those dollars are used matters as much as the amount.
How a temporary buydown works
In a 2-1 buydown, the buyer's rate is 2 percentage points lower in year one and 1 point lower in year two. In year three it goes to the full note rate. The seller's money is deposited up front to cover the difference.
Under Fannie Mae's rules:
- The buyer must still qualify at the full note rate.
- The rate can't step up by more than 1 percentage point a year.
- The buydown can't last longer than three years.
A 1-0 buydown is a one-year version.
How a price reduction works
The price drops, so the loan amount drops. The savings are smaller each month but they last for the life of the loan. A lower price can also lower the down payment and property taxes over time and it helps if the appraisal is tight.
A simple comparison
Here's a $450,000 home with 10% down, at the 7.40% average 30-year fixed rate Freddie Mac reported on October 15, 2026. Payments are principal and interest only.
Loan amount | Year 1 payment | Year 2 payment | Year 3+ payment | |
|---|---|---|---|---|
No concession | $405,000 | $2,804 | $2,804 | $2,804 |
$10,000 price reduction ($440,000 price) | $396,000 | $2,742 | $2,742 | $2,742 |
Seller-paid 2-1 buydown (costs about $9,600) | $405,000 | $2,274 | $2,533 | $2,804 |
The buydown saves the buyer about $530 a month in year one and $271 a month in year two. The price cut saves $62 a month, every month and lowers the down payment by $1,000. It takes about 13 years of those $62 savings to catch up to what the buydown saves in the first two years.
Want to run your own numbers? randythelender.com has calculators for monthly payments and closing costs.
Seller concession limits
Concessions can't exceed the buyer's actual closing costs and prepaids and loan programs cap them. Typical limits as a percentage of the price:
Loan type | Limit |
|---|---|
Conventional, under 10% down | 3% |
Conventional, 10% to 24.99% down | 6% |
Conventional, 25% or more down | 9% |
FHA | 6% |
VA | 4%, plus customary closing costs |
USDA | 6% |
Check the exact limits with the buyer's lender.
When each one makes sense
It really depends on the buyer. Here's how to think about it:
- Buydown: the buyer expects income to grow, plans to refinance if rates fall, or needs the lowest payment right now.
- Price reduction: the buyer plans to keep the loan a long time, the appraisal is a concern or the buyer is paying cash.
- Closing costs: sometimes the best use of the money is covering the buyer's cash to close.
FAQ
What happens to unused buydown funds if the buyer refinances? It depends on the loan program and servicer. Ask the lender before closing.
Does a buydown change the sales price? No. The price stays the same, which can matter for neighborhood comparable sales.
Can a buyer pay for their own buydown? Yes, but it's most common when a seller or builder funds it.
Final takeaway
A buydown wins on the early payments. A price cut wins on the long haul. Ask a lender to run both side by side before you decide how to use the seller's money.
Negotiating a seller concession?
Jeanie Marten Real Estate tracks how concessions are being used in Sachse, Wylie, Murphy and Lavon. Call (972) 414-0719 or visit martenteam.com.
This post is general information, not financial advice. Loan rules and limits vary by lender and program.
Related posts
- Mortgage Rates Are Coming Down, But Waiting to Buy May Come With a Different Cost
- You're Not Just Competing With the House Down the Street. You're Competing With a Builder.
Sources: Freddie Mac rate release, October 15, 2026, Fannie Mae Selling Guide B2-1.4-04 summary (Homebuyer.com), JVM Lending: Seller concessions
