Price cut or rate buydown? How to spend a seller's money on a resale home

With mortgage rates remaining stubbornly high, some home sellers are offering to buy down a new loan's rate on behalf of the borrower.

A buydown can sweeten the deal for a home buyer, but not every promotion works the same way.

Some change the loan's rate permanently while others can lower the payment during the opening years of the loan.

...in as little as 3 minutes — no credit impact

How a price cut and a rate buydown change your loan

Seller money can usually take one of three forms, and each changes a different part of your mortgage.

• Price reduction: The contract price drops. Your loan amount, down payment, and property tax assessment all start from a lower number, but your interest rate stays the same.
• Permanent buydown: The price stays the same, and the seller pays for mortgage points on your behalf. Your rate is lower for the full term of the loan.
• Temporary buydown: The price and your note rate (the rate written into your loan) stay the same. The seller's money goes into an account that covers part of your payment early on. In a 2-1 buydown, your effective rate is 2 percentage points lower in year one, 1 point lower in year two, and back to the full rate in year three.

Both buydowns are a type of seller concession, a credit from the seller applied at closing, so program limits apply.

The math on a $450,000 home at 7.5%

Here's how the same $12,150 from a seller plays out on a resale home. The example assumes a $450,000 contract price, 10% down, and a 30-year fixed rate of 7.50%. It also assumes each discount point lowers the rate by about 0.25%, so $12,150 (three points on a $405,000 loan) buys the rate down to 6.75%. Actual point pricing varies by lender and by day.

Option	Loan amount	Rate	Monthly P&I	Change vs. no concession
No concession	$405,000	7.50%	$2,832	—
$12,150 price cut	$394,065	7.50%	$2,755	–$76
Permanent buydown	$405,000	6.75%	$2,627	–$205
2-1 buydown, year 1	$405,000	5.50% effective	$2,300	–$532
2-1 buydown, year 2	$405,000	6.50% effective	$2,560	–$272
2-1 buydown, year 3+	$405,000	7.50%	$2,832	—

Example is for illustrative purposes only. Rates, payments, and total interest will vary based on credit profile, loan terms, and market conditions.

P&I is principal and interest only. Your full payment will also include property taxes, homeowners insurance, and private mortgage insurance (PMI) if you put less than 20% down. You can plug in your own numbers with Better's mortgage calculator.

On a monthly basis, the permanent buydown saves about 2.7 times as much as the price cut. The 2-1 buydown delivers the biggest early relief, but it only costs about $9,651 to fund, which leaves roughly $2,499 of the seller's money for your closing costs.

Why the lower payment isn't always the cheaper choice

A price cut also lowers your loan balance by nearly $11,000 and your down payment by $1,215. If you sell or refinance, that smaller balance is money you keep.

The table below compares the total cost of each option, counting your down payment, every payment made, and the balance you'd owe at payoff. The cheapest option in each row shows $0.

If you sell or refinance after	Price cut	Permanent buydown	2-1 buydown
2 years	$0	+$7,679	+$1,626
3 years	$0	+$5,417	+$2,426
5 years	$0	+$845	+$3,999
10 years	+$10,769	$0	+$18,500

Example is for illustrative purposes only. Rates, payments, and total interest will vary based on credit profile, loan terms, and market conditions.

In this example, the permanent buydown doesn't pull ahead of the price cut until about 65 months, or roughly five and a half years. That's the break-even point. Before then, the price cut costs less in total, even though its monthly savings are smaller.

The 2-1 buydown trails the price cut at every point. It's a cash-flow tool, not a savings tool: it makes the first two years easier to afford, but the loan balance never shrinks.

Two more factors tend to favor the price cut. A lower purchase price can mean lower property taxes for as long as you own the home, depending on how your area assesses value.

And if rates fall and you decide it's time to refinance, you walk away from whatever value is left in a permanent buydown.

When each option makes sense

Ask for a price cut when:

• You expect to sell, move, or refinance within about five years.
• The home may not appraise at the contract price. If the appraisal comes in lower than your offer, a buydown won't close that gap, but a lower price will.
• Cash for your down payment is tight, since a lower price lowers the amount you need to bring.

Ask for a permanent buydown when:

• You plan to keep the loan well past the break-even point.
• Your monthly payment or debt-to-income ratio (DTI) is the main constraint. DTI compares your monthly debts to your gross monthly income, and a lower rate lowers the payment your lender uses to calculate it.
• The home is priced in line with recent sales, so appraisal risk is low.

Ask for a temporary buydown when:

• You expect your income to rise in the next year or two.
• You can comfortably afford the full payment in year three. Lenders generally qualify you at the full note rate, not the reduced first-year rate.

...in as little as 3 minutes — no credit impact

Limits on how much a seller can contribute

Every loan program caps seller concessions, and a buydown counts toward that cap. For a primary residence, typical limits are:

• Conventional loans: 3% of the price with less than 10% down, 6% with 10% to 25% down, and 9% with more than 25% down.
• FHA loans: 6% of the sales price. FHA loans are backed by the Federal Housing Administration.
• VA loans: Certain concessions are capped at 4% of the home's reasonable value, though some standard closing costs don't count toward that limit.

Seller credits also can't exceed your actual closing costs and prepaid items, and they generally can't go toward your down payment. If a buydown uses most of your allowable concession, there may be little left to help with other closing costs. Ask your loan officer how any credit will be structured before you sign the purchase contract.

How to ask for it in your offer

Rising inventory gives buyers more room to negotiate on resale homes. To make a concession request work:

1. Get pre-approved first. A pre-approval shows sellers you're a serious buyer and gives you a rate to build scenarios around.
2. Price both options with your lender. Ask how many points the seller's credit would buy on your specific loan and what the break-even would be.
3. Write the terms into the contract. Your agent can specify the credit amount and that it may cover closing costs and discount points. Our guide on how much to offer on a house covers how concessions fit into offer strategy.
4. Lock your rate once terms are set. A rate lock protects your rate between contract and closing.

Better's fully online process lets you get pre-approved and compare rate options before you make your offer, so you can walk into negotiations knowing which structure works for you.

Frequently asked questions

I'm buying a $450,000 home with 10% down and the seller offered about $12,000. Should I take it as a price cut or a buydown?

It depends on how long you'll keep the loan. In the example above, the buydown saves about $205 a month versus $76 for the price cut, but the price cut costs less in total if you sell or refinance within about five and a half years.

I might refinance if rates drop next year. Is a permanent buydown a waste of the seller's money?

It could be. If you refinance early, you give up the remaining value of the lower rate, while a price cut's smaller balance stays with you. If refinancing soon is likely, a price cut may serve you better.

My income will go up next year when I finish residency. Is a 2-1 buydown a good fit?

A 2-1 buydown is designed for this situation, since it lowers payments in the years before your income rises. Keep in mind that lenders generally qualify you at the full note rate, so you'll still need to show you can afford the year-three payment today.

Can the seller pay for a buydown on an FHA or VA loan?

Generally, yes. Seller-paid buydowns are allowed on both, but they count toward each program's concession limits described above. Your lender can confirm how a buydown would be treated.

What happens if the home appraises below my offer after I negotiate a buydown instead of a price cut?

A buydown doesn't change the contract price, so a low appraisal can still leave you covering the gap in cash or renegotiating. If comparable sales suggest the home is overpriced, a price reduction is usually the safer ask.

Does a seller-paid buydown help me qualify if my debt-to-income ratio is tight?

A permanent buydown can help, because the lower rate lowers the payment your lender uses to calculate DTI. A temporary buydown usually doesn't, since you're typically qualified at the full note rate.

Will asking for a buydown instead of a price cut make my offer less attractive?

Not necessarily. A credit and a price cut of the same amount cost the seller about the same, and some sellers prefer a credit because it keeps the recorded sale price higher.

The bottom line

At 7.5% rates, a seller-paid rate buydown stretches each dollar further on your monthly payment, but a price cut can still cost you less if you expect to move or refinance within about five years. Match the structure to your timeline, check your program's concession limits, and run both scenarios with your lender before you write your offer.

...in as little as 3 minutes — no credit impact