Key facts
- A seller-funded temporary rate buydown allows buyers to pay a lower mortgage rate for the first few years.
- The seller helps cover the difference through a credit at closing.
- A common 2-1 buydown reduces the initial rate by two percentage points for the first year, and one percentage point for the second year.
- This strategy can provide new homeowners with financial cushioning in the early years of ownership.
High mortgage rates have significantly slowed the US housing market, with the average 30-year fixed rate reaching about 7.4% in early October. Real estate investor and agent Dana Bull suggests that buyers can still negotiate favorable terms, even in a challenging market. One such strategy is a seller-funded temporary rate buydown, where a seller provides a closing credit to subsidize the buyer's mortgage payments for the initial years of the loan. This can offer crucial financial relief as new homeowners adjust to ownership costs. Bull notes that this tactic is most effective when a property has been on the market for a while or the seller is highly motivated. However, she cautions that the mortgage's original rate applies after the buydown period, and buyers should be prepared for those higher payments or hope to refinance at a lower rate in the future.