A seller-paid rate buydown is when the seller contributes money at closing to lower the buyer’s mortgage interest rate, either temporarily or for the life of the loan. With 30-year rates near 7%, a buydown can do more for a buyer’s monthly payment than a price reduction of similar cost. That makes it a useful tool for Pierce County sellers who want to stand out and for buyers trying to make a payment work.
This article explains how buydowns work, the lending limits that apply, and how to decide whether a buydown or a price cut makes more sense. It is general information; the buyer’s lender sets the actual terms.
Why buydowns are getting attention
Freddie Mac’s survey put the average 30-year fixed rate at 6.95% for the week of September 17, 2026 (Freddie Mac PMMS). In Pierce County, NWMLS reported active listings up about 21% year over year in August while pending sales fell about 15%. Buyers have more choices, and many are focused on the monthly payment rather than the price alone. See our August 2026 Pierce County market update for details.
Two types of buydowns
Temporary buydown
A temporary buydown lowers the rate for the first year or years, then steps up to the full note rate. A common version is the “2-1 buydown”: the rate is 2 percentage points lower in year one, 1 point lower in year two, and at the full rate from year three on. The seller’s contribution is held in a custodial account and used to cover the difference in payments.
For conventional loans sold to Fannie Mae, temporary buydowns are limited to a maximum 3% rate reduction, no more than a 1% increase per year, and a buydown period of no more than three years. The buyer must still qualify at the full note rate, not the reduced rate (Fannie Mae Selling Guide B2-1.4-04).
Permanent buydown
A permanent buydown uses discount points paid at closing to lower the rate for the entire loan term. How much rate reduction a point buys varies by lender and market conditions, so the buyer’s loan officer needs to price it.
An illustrative example
These numbers are for illustration only, covering principal and interest on a 30-year fixed loan. Taxes, insurance, HOA dues, and actual loan pricing will differ.
| Scenario ($600,000 price, 20% down) | Monthly P&I | Monthly savings |
|---|---|---|
| $480,000 loan at 6.95% | about $3,177 | — |
| 2-1 buydown, year 1 (4.95%) | about $2,562 | about $615 |
| 2-1 buydown, year 2 (5.95%) | about $2,862 | about $315 |
| $15,000 price reduction instead (loan $468,000 at 6.95%) | about $3,098 | about $79 |
In this example, the 2-1 buydown costs about $11,200 in payment subsidies and saves the buyer far more per month in the first two years than a $15,000 price reduction would. The price cut, however, lowers the payment for the life of the loan and may matter more to a buyer who plans to stay a long time or who is focused on the appraised value.
Thinking about offering a buydown?
Josh can help you compare a buydown, a price adjustment, and closing-cost credits based on your net proceeds and the buyers in your price range. Request a complimentary Home Selling Strategy Session.
Limits on seller contributions
Seller-paid buydowns count as “interested party contributions” for most loan types, and those contributions are capped. For conventional loans sold to Fannie Mae on a principal residence or second home, the limits are:
- 3% of the price when the loan-to-value is above 90%
- 6% when the loan-to-value is 75.01% to 90%
- 9% when the loan-to-value is 75% or less
Investment properties are limited to 2% (Fannie Mae Selling Guide B3-4.1-02). FHA, VA, and other programs have their own rules, and individual lenders may be stricter. Any buydown, closing-cost credit, or other concession combined must fit within the buyer’s program limit.
When a buydown makes sense for sellers
- Payment-sensitive price ranges. In many first move-up and family-home price ranges, buyers shop by monthly payment.
- Homes that have been sitting. A buydown can refresh interest without resetting the list price. If your home is sitting, start with what to check before you cut the price.
- Marketing it clearly. Offering a credit “toward a rate buydown or closing costs” gives buyers flexibility and helps your listing stand out in search results and conversations with buyers’ brokers.
Before you commit, compare the cost of a buydown against a price reduction in terms of your net proceeds. Our guide to what it costs to sell a house in Pierce County can help you estimate your net.
What buyers should know
- With a temporary buydown, plan your budget around the full payment that arrives in year three.
- You still qualify at the full note rate.
- If you refinance before the buydown period ends, ask your lender how remaining buydown funds are handled.
- Ask for quotes on both temporary and permanent options so you can compare the total cost and your likely time in the home.
Frequently asked questions
Is a seller credit the same as a buydown?
Not exactly. A seller credit can be applied to closing costs, prepaid items, or a buydown, depending on the contract and the loan program. How the credit is used should be clear in the purchase agreement and approved by the lender.
Can a buydown be combined with a price reduction?
Yes, as long as the total concessions stay within the buyer’s loan program limits and the appraisal supports the price.
Make the numbers work
The right incentive depends on your home, your price range, and your goals. Book your complimentary Home Selling Strategy Session with Josh Barnard and The Barnard Group to compare your options side by side.
This article is general information, not lending or financial advice. Loan terms, eligibility, and limits are set by the buyer’s lender and loan program.
