Seller-Paid Buydown

Home loans

A solution for homebuyers and home sellers

Whether you’re currently a buyer, seller, or both, a seller-paid buydown could be the home buying or selling solution you need.

What is a seller-paid buydown?

A seller-paid buydown is when points—commonly referred to as discount points, mortgage points, or prepaid interest—are used to buy down a loan’s interest rate as a one-time upfront fee, and the seller covers the cost of that.

The value of one point equals one percent of the principal (original loan amount), meaning that one point on a $100,000 loan would equal $1,000. While that’s a consistent value across lenders, the amount that one point will reduce a loan’s interest rate can vary between lenders and is dependent on additional factors such as the loan type and current rates. It’s also important to note that there might be buydown maximums.

 

Potential seller-paid buydown benefits for buyers
  • Helps them ease into homeownership.
  • Initial monthly payments are below their permanent monthly payment, making the mortgage more affordable upfront.
  • Allows them to take advantage of an interest rate that’s lower than the current market interest rate.

 

Potential seller-paid buydown benefits for sellers
  • It might make their home listing more attractive to buyers and help it stand out against other listings, especially in a market facing interest rate hikes.
  • If a buyer requests for a seller to offer one and the seller accommodates the request, the buyer could be more likely to purchase the home.
  • It may be a great home selling strategy for homes that are sitting on the market.

 

Frequently asked questions:
What seller-paid buydown programs does Evergreen offer?

At Evergreen, we offer three types of temporary buydown programs: 1-0, 2-1, and 3-2-1

How does a 1-0 buydown work?

A 1-0 seller-paid buydown allows for the interest rate to be reduced during the first year of the loan term before rising to the permanent rate in year two. It’s often reduced by 1% in the first year.

How does a 2-1 buydown work?

A 2-1 seller-paid buydown allows for the interest rate to be reduced during the first two years of the loan term before rising to the permanent rate in year three. It’s often reduced by 2% in the first year, followed by 1% in the second year.

How does a 3-2-1 buydown work?

A 3-2-1 buydown allows for the interest rate to be reduced during the first three years of the loan term before rising to the permanent rate in year four. It’s often reduced by 3% in the first year, followed by 2% in the second year and 1% in the third year.

What buydown types are available overall?

Overall, there are various buydown options. Different ways for the cost of a buydown to be paid include seller-paid, buyer-paid, and builder-paid. Also, buydowns can be permanent or temporary and apply to fixed-rate and adjustable-rate mortgages. With a permanent buydown, the interest rate gets bought down for the full loan term. In comparison, temporary buydowns allow for the interest rate to temporarily get bought down for a specific amount of years during the loan term.

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