Buydown
Paying money upfront to lower the interest rate, either permanently or for a set number of years. A 2-1 buydown drops the rate 2% in year one and 1% in year two.
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Why a seller cares
A buydown is a seller concession that lowers the buyer's rate for a year or two, and it costs you a fixed amount at closing. Buyers ask for it in place of a price cut when payments, not price, are what worry them.
Part 2 of 4
A simple example
A buyer asks for a 2-1 buydown on a $240,000 loan at 6.5%. Their rate is 4.5% the first year and 5.5% the second.
| The year | What the buyer pays, and what it costs you |
|---|---|
| Year one at 4.5% | About $300 a month less for them; roughly $3,600 of your credit |
| Year two at 5.5% | About $150 a month less; roughly $1,800 more |
| Year three on | Full rate; the credit is used up |
The buydown is a concession with a schedule. Its total cost is known at closing.
Part 3 of 4
What people get wrong
That a buydown is cheaper than a price cut of the same size. It nets the same to you; the difference is what the buyer's lender will finance.
Part 4 of 4 · where to read next
Where it appears in the sale
What a definition is, and what it isn't
Keighbor is a software company, not a law firm, brokerage, or tax adviser. This is general information, not legal, tax, financial, or real estate advice about your sale. Your situation may differ. Before acting on a contract, disclosure, title, tax, or pricing question, ask an appropriately licensed professional in your state.
Written and researched by Keighbor Research · drawn from the reference glossary · how we research and check what we publish
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