The short answer
Rate buydown vs price cut: the same seller dollars usually lower the monthly payment more as a buydown than as a price drop. A price cut shrinks the loan a little. A buydown lowers the rate, or the early payments. A price cut wins when the appraisal is tight, the buyer pays off fast, or taxes follow price.
Below: the five steps, a side-by-side payment table, a "when each wins" table and the scripts for buyers and sellers.
Step by step: how to compare a rate buydown vs price cut
- Get the seller's number. How much will the seller give? Price cut or credit, same dollars.
- Ask the lender for three quotes. Price cut payment. Points payment. Temporary buydown payment. Points pricing changes daily and by lender, so get it in writing.
- Ask the buyer two questions. "How long do you plan to keep this loan?" and "Which year worries you most?"
- Check the concession limit. Buydowns and closing cost credits count toward the loan program's cap. See seller concessions.
- Write it right. Ask for a dollar credit toward closing costs, prepaids and rate buydown. Use your state's approved forms. Check wording with your managing broker.
There are three ways to spend a seller's money:
- Price cut. Lower price, lower loan, slightly lower payment. Also lowers the comp for the neighborhood.
- Permanent buydown (points). The seller pays discount points. The rate is lower for the life of the loan.
- Temporary buydown (2-1 or 3-2-1). Lower payments for the first two or three years, then the full rate. See 3-2-1 buydown explained.
A worked example (illustration only)
A seller offers $12,000. The buyer has a $400,000 loan at an assumed 7.00% note rate, 30-year fixed, 10% down.
| Option | What changes | Monthly principal and interest | Monthly savings |
|---|---|---|---|
| No help | Nothing | $2,661.21 | None |
| $12,000 price cut | Loan drops about $10,800 | $2,589.36 | about $72 |
| $12,000 in points | Rate drops to an assumed 6.25% | $2,462.87 | about $198, every year |
| 2-1 buydown (cost about $9,323) | Year 1 figured at 5%, year 2 at 6% | $2,147.29 / $2,398.20 | $514 / $263; leftover about $2,677 to closing costs |
Illustration only. A lender sets the real terms. Assumes a $400,000 loan amount, a 7.00% fixed note rate, 360 monthly payments, principal and interest only. The points example assumes 3 points buys 0.75%; real pricing varies daily and by lender. Taxes, insurance, HOA dues and mortgage insurance are not included. The annual percentage rate (APR) would differ from the note rate. This is not an offer of credit. Learn how points work at the CFPB.
When each option wins
| Situation | Usually wins | Why |
|---|---|---|
| Buyer worried about the first two or three years | Temporary buydown | Biggest early payment drop |
| Buyer keeping the loan 7+ years, no refinance planned | Permanent points | Savings every month for the life of the loan |
| Buyer likely to refinance if rates fall | Temporary buydown or price cut | Points lose value at a refinance |
| Appraisal is coming in short | Price cut | A buydown doesn't fix value |
| Buyer paying the loan off fast | Price cut | Less owed from day one |
| Property taxes or HOA fees tied to price | Price cut | Lower recorded price |
| Seller wants to protect the street's comps | Buydown | List and sale price stay put |
Is a seller-paid buydown better than a price reduction?
For monthly payment, usually yes, because a rate change touches every dollar of the loan while a price cut only touches the dollars removed. But it's not automatic. The buyer still has to qualify, often at the full note rate on a temporary buydown, and the credit counts toward the concession cap. Run all three options with the lender before you pick.
Does a buydown affect the appraisal?
The appraiser sees concessions in the contract and may consider them when comparing sales. A buydown doesn't raise or lower the value of the house. If the home won't appraise at the price, a buydown won't fix that gap. A price cut, or an appraisal gap plan, might.
How to explain it to your client
To a buyer:
"The seller will give us $12,000. If we take it off the price, your payment drops about $72 a month. If we use it to buy down your rate, it drops about $200 a month for the whole loan. If we use it for a temporary buydown, it drops over $500 a month in year one. Same money. Your lender will confirm the real numbers. Which one helps you sleep at night?"
To a seller:
"A price cut shows up on every website and becomes the new comp for your street. A credit toward the buyer's rate doesn't change your list price, and it often does more for the buyer. You net about the same. Let's offer a rate credit before we talk about dropping the price."
Watch-outs
- Appraisal comes first. If the home won't appraise at the price, a buydown doesn't fix that.
- Short-term owners. Points take years to pay off. A buyer moving in three years may be better off with a temporary buydown or price cut.
- Refinance plans. If the buyer plans to refinance when rates fall, permanent points lose value.
- Concession caps. Too much credit can get cut at underwriting. Know the cap.
- Taxes. Points can have tax treatment. Send that question to a CPA.
- Never quote points pricing yourself. It's the lender's job, and it changes daily.
Keep going
- All financing pages: financing and DPA training
- Next: 3-2-1 buydown explained, seller concessions explained, how to ask for a price reduction, how to handle the rate objection
- Show buyers their options on paper: the Buyer's Advantage Report gives three offer strategies for one home, with the numbers behind each.
- Let buyers test payments on your own site with the Mortgage Calculator Widget, a slider calculator you paste into WordPress.
This is training for real estate agents. It isn't legal, tax or lending advice. A licensed loan officer sets terms. Check with your managing broker.
Questions
Which saves more, a price cut or a rate buydown?
For monthly payment, a buydown usually does, using the same dollars. Over the full loan, it depends on how long the buyer keeps it. Have the lender run both.
Is a price cut ever better than a buydown?
Yes. When the appraisal is tight, when the buyer will pay the loan off fast, or when taxes or fees follow the price.
How much does one point cost?
One point is 1% of the loan. On $400,000, that's $4,000. How much it lowers the rate varies by lender and day.
Do buyers qualify at the bought-down rate?
On a temporary buydown, lenders usually qualify at the full note rate. On permanent points, the lower rate is the real rate. Confirm with the lender.
Can the seller pay for both a buydown and closing costs?
Yes, up to the loan program's concession limit.
Does a buydown change the purchase price?
No. The price stays. The seller gives a credit at closing.
Brian Lee Burke is the founder of PadLeaders, a Colorado real estate broker licensed since 2003, team leader of The Kenna Group at Keller Williams DTC (formerly Kenna Real Estate Group) and the author of Mastering Real Estate and The Real Estate Playbook. More about Brian.