Seller Paid Buydowns in Washington State

What Is a Seller Buydown?

A seller buydown is a seller-paid concession where the seller contributes money at closing to reduce the buyer’s mortgage interest rate — either permanently or temporarily. The seller typically funds this from their net proceeds. The buyer gets a lower rate or lower early payments; the seller gets a deal done.

There are two broad categories: permanent buydowns, which lower the rate for the life of the loan, and temporary buydowns, which reduce the payment for the first one to three years before returning to the note rate. Each serves a different purpose, and the right choice depends on the buyer’s situation, how long they expect to stay in the home, and what a potential rate refinance might look like.

Permanent Seller Buydowns

In a permanent buydown, the seller pays discount points at closing to buy the buyer’s interest rate down for the full loan term. Each discount point equals 1% of the loan amount and typically reduces the rate by roughly 0.25%, though the exact pricing depends on the loan program and market conditions on the day the rate is locked.

The key advantage here — beyond the lower monthly payment — is that the buyer qualifies at the lower rate. This matters when a buyer is stretching to meet debt-to-income ratio requirements. A permanent buydown may allow a buyer to qualify for a home they otherwise couldn’t, or to qualify more comfortably at a loan amount that better fits the home they want.

Temporary Seller Buydowns

Temporary buydowns work differently than most people expect. The buyer’s actual mortgage payment — the amount the lender requires each month — is always calculated at the full note rate. That never changes. What the seller is doing is pre-funding the difference between that full payment and the lower “effective” payment the buyer makes during the buydown period.

Here’s how it works mechanically: at closing, the seller deposits a lump sum into a custodial escrow account held by the lender. Each month during the buydown period, the lender draws from that account to make up the gap between what the buyer pays and what the loan actually requires. The buyer writes a smaller check; the escrow account covers the rest. By the time the buydown period ends, the escrow account is depleted and the buyer takes over the full note rate payment on their own.

Two important consequences of this structure: First, the buyer qualifies at the full note rate — the underwriter uses the actual contractual payment, not the subsidized first-year payment, to calculate the debt-to-income ratio. Second, the seller’s total cost equals the sum of all monthly subsidy payments over the buydown period — that’s the exact amount deposited into escrow at closing. Your loan officer can calculate this figure precisely once the purchase price and rate are known.

If the buyer refinances before the buydown period ends, any unused funds remaining in the escrow account are refunded — they don’t simply disappear. That balance is typically applied to the payoff of the existing mortgage at closing, effectively reducing what the buyer owes at the time of refinance.

The 2-1 Buydown

The 2-1 buydown is the most commonly used temporary buydown for residential purchases. Here’s how the rate schedule works:

The seller’s total cost for a 2-1 buydown is the sum of the monthly payment differences over the two-year period — that’s the total amount deposited into the escrow account at closing. Your loan officer can calculate this precisely once a purchase price and rate are known.

The 3-2-1 Buydown

The 3-2-1 buydown extends the subsidy period to three years, stepping down from 3% below the note rate in year one:

The 3-2-1 costs more for the seller than a 2-1 because the subsidy period is longer and the first-year discount is larger. It’s less common for standard residential purchases, but it’s sometimes offered by home builders as an incentive and can make sense in specific scenarios — particularly when a buyer expects their income to increase meaningfully within the first few years.

The 1-0 Buydown

A simpler option is the 1-0 buydown: the buyer’s payment is based on a rate 1% below the note rate for the first year only, then steps to the full note rate in year two and beyond. This is the least costly temporary buydown for a seller to fund, and it can still provide meaningful near-term payment relief for a buyer.

Buydown vs. Price Reduction: What Works Better?

When a seller is deciding how to respond to a buyer’s request for concessions, this comparison almost always comes up. The two strategies have different impacts, and the math doesn’t always favor the price reduction — even though that’s the more familiar concession. 

A price reduction lowers the loan amount, which slightly reduces the principal and interest payment. For a buyer financing at 95%, reducing the sales price by $15,000 lowers the loan amount by $14,250 — which translates to a modest monthly payment change. The same $15,000 applied to buying down the interest rate permanently can produce a larger monthly savings, compounded over the full loan term. And if it improves the buyer’s qualifying ratio, it may make the difference between getting the loan approved and not.

The calculus shifts depending on how long the buyer plans to stay in the home, whether rates are likely to drop (making a temporary buydown more attractive if refinancing is likely), and what the buyer’s specific qualifying situation looks like. There’s no universal right answer — which is exactly why modeling the numbers before you negotiate is worthwhile.

Read: Why You Need a Total Cost Analysis, Not Just a Quote

Seller Concession Limits by Loan Type

One important practical note: how much a seller can contribute toward a buydown is governed by loan program guidelines, not just negotiation. Seller concession limits vary by loan type and down payment:

Buydown funds count against these seller concession limits, so it’s important to account for them early in the transaction — especially if the buyer also expects the seller to contribute toward closing costs.

When Does a Seller Buydown Make the Most Sense?

Seller buydowns tend to make the most strategic sense in a few specific situations:

• The buyer is near their qualifying limit. A permanent buydown lowers the qualifying payment and may be what gets the loan approved at a given purchase price.
• The buyer expects to refinance within a few years. A temporary buydown provides near-term payment relief without locking in permanent points — and if rates drop and the buyer refinances, the remaining buydown funds offset the loan payoff.
• The seller needs to net a certain amount. A buydown costs the seller less than a price reduction for the same buyer payment benefit, which means the seller can sometimes net more while still making the deal work for the buyer.
• The home has been sitting on the market. A seller-offered buydown can re-energize buyer interest and differentiate a listing without the optics of a price cut.
• The buyer is cash-constrained. A buydown doesn’t reduce the loan amount (so it doesn’t change the down payment requirement), but it does reduce the monthly payment — which can improve affordability in the years the buyer is establishing themselves financially.

Frequently Asked Questions About Seller Buydowns

Can a buyer request a seller buydown in an offer?

Yes. A seller buydown is a negotiated concession — buyers can request it just as they would ask the seller to cover closing costs. It needs to be documented in the purchase and sale agreement and structured correctly with the lender. If you’re considering requesting a buydown, loop in your loan officer before writing the offer so the amount can be estimated accurately.

Does the buydown need to be disclosed on the loan?

Yes. Seller-paid buydown funds are a seller concession and must be disclosed on the Closing Disclosure. They count against the seller concession limits for your loan type. Your loan officer will account for this during underwriting.

What happens to the buydown funds if I refinance early?

With a temporary buydown, if you refinance before the buydown period ends, any unused funds remaining in the escrow account are refunded to you. That balance is typically applied to the payoff of your existing mortgage at closing, reducing the amount you owe at payoff. The funds are not forfeited — you receive the benefit of whatever subsidy remains unused.

Can the seller just give the buyer cash instead of a buydown?

No. Sellers cannot transfer cash directly to a buyer outside of the transaction — all seller contributions must flow through the closing and be documented on the settlement statement. Attempting to transfer funds outside of closing is considered an undisclosed concession and can constitute mortgage fraud.

Does a temporary buydown work with all loan types?

Temporary buydowns are available on conventional, FHA, VA, and USDA loans, though specific eligibility and structure requirements vary by loan program and lender. Not all lenders offer every buydown structure, so confirm with your loan officer early in the process.

Is a seller buydown the same as seller-paid closing costs?

Not exactly. Seller-paid closing costs can cover a variety of buyer expenses — title fees, loan origination fees, prepaid items, and more. A buydown is a specific use of seller concession funds to reduce the interest rate or buy down the payment. Both count against the seller concession limit, so if you’re negotiating both, they need to be planned together.

Are seller buydowns available for investment properties?

Yes — temporary and permanent buydowns can be structured on investment property purchases as well, though guidelines differ. See my post on seller buydowns for investment property for more detail on how they work in that context.