How It Works
Seller Contributes at Closing
Instead of cutting the sale price, the seller puts a portion of their proceeds into an escrow account.
Your Rate Drops Temporarily
That escrow account subsidizes your interest rate — typically 2% lower in Year 1, 1% lower in Year 2.
You Keep Your Options Open
If rates drop, you refinance into a lower permanent rate and any unused escrow funds go toward reducing your balance. You paid nothing for the buydown — the seller did. Zero risk.
A Simple Example
$875,000 home, 20% down, $700,000 loan at 6.5%
Standard
$4,424/mo
6.50% fixed
With Buydown — Year 1
$3,547/mo
4.50% (saves $877/mo)
The seller covers approximately $15,900 from their proceeds — less than a price cut would cost them, which is why most sellers prefer this structure.
What Happens If Rates Drop?
This is the part most people miss. You didn’t pay for the buydown — the seller did. If rates come down and you refinance into a lower permanent rate, the unused buydown funds in escrow go straight toward reducing your loan balance.
So you kept every dollar of monthly savings, you paid nothing for the relief, and now you have a lower rate and a lower balance. Zero risk. Zero cost to you.
Compare that to buying points out of your own pocket: if you refinance after 14 months, you’ve lost roughly $11,000. With a seller-funded buydown, you lose nothing.
Why This Beats a Price Cut
- For you as a buyer: A ~$16K buydown saves you $877/mo in Year 1. A $20K price cut only saves about $101/mo. Nearly 9× more monthly relief.
- Why the seller says yes: It costs them less than a price cut, their sale price stays on record, and the deal closes instead of stalling.
- If rates stay flat: You still got two years of lower payments — about $16K in relief — paid for by the seller. Then you transition to the rate you already qualified for. There is no downside scenario.
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