Yes, sellers can fund rate buydowns as a concession at closing. The seller contributes money toward discount points, which lowers your interest rate. This is common in buyer's markets and with new construction builds. Builder incentives often include 2-1 temporary buydowns. The amount a seller can contribute is capped by loan type and LTV.
How Sellers Pay for Buydowns
The seller credits you money at closing, which you or the title company applies toward discount points. These credits appear on your Closing Disclosure as a seller concession. The concession can be used for points, closing costs, or prepaids depending on the contract.
Seller concession limits vary by loan type. FHA loans allow up to 6% of the purchase price. Conventional loans allow 3% to 9% depending on your down payment. VA allows up to 4% in concessions. USDA allows up to 6%.
Builder Incentives and Buydowns
Builders frequently offer rate buydowns as part of their incentive packages. A common offering is a 2-1 temporary buydown where the builder pays the subsidy into an escrow account, giving you a reduced rate for the first two years.
Builder buydowns are often more generous than resale seller concessions because builders have profit margin built into the home price. Always ask the builder's sales team about available buydown programs before negotiating.
Negotiating a Seller-Paid Buydown
Include the request in your purchase offer as a seller concession. Your agent will write it into the contract. Specify the dollar amount or percentage of the purchase price. If the seller is motivated, they may agree to cover all or part of the buydown cost.
In a multiple-offer situation, a seller-paid buydown can make your offer more attractive because it shows you are serious and have a financing strategy in place.
New Construction Buydowns
Builders often use their preferred lender to offer buydowns. The builder may pay 2-3 points to reduce your rate permanently or fund a 2-1 temporary buydown. These offers can save you thousands compared to buying points yourself.
However, always compare the builder's preferred lender offer with an outside lender. Sometimes the rate buydown is built into a higher base price, so run both scenarios.
Contract Language for Seller Concessions
In Texas, seller concessions are spelled out in the One to Four Family Residential Contract (TREC). Your agent will specify the concession amount as a dollar figure or percentage. The contract should clearly state the concession is for "buying down the interest rate, payment of discount points, and closing costs."
Cost Comparison: Seller Pays vs Buyer Pays
$350K loan with 1 point ($3,500):
- Seller pays points:You save $3,500 upfront, lower rate
- You pay points:$3,500 out of pocket, same lower rate
- Net benefit (seller pays):$3,500 saved at closing
