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Concept · updated 2026-09-16

Loan Buydowns

Prepaid interest with a nickname: the rules, the cost, the history, and when a seller should give one instead of a price cut.

Status: complete first pass

V verified — safe P primary read — safest S secondary — hedge it ? unsourced — never on air

How to Use This

This is the prose layer. The evidence layer is Loan Buydowns — every claim there carries a confidence tag and a source. Web version: https://concepts.rycolston.com/loan-buydowns/

Rule before you record anything: if a sentence here matters, open Loan Buydowns and check its tag. V and P are safe. S needs a hedge. ? does not get said out loud.

Seven chapters. Chapter 1 is what a buydown is. Chapters 2 and 3 are the rules and the fine print. Chapter 4 is the money. Chapter 5 is how common they are. Chapter 6 is the history. Chapter 7 is the decision: buydown or price cut.

Table of Contents

  1. Prepaid Interest With a Nickname — the three kinds
  2. What the Rule-Makers Allow — Fannie, Freddie, FHA, VA, USDA
  3. The Fine Print — the flyer, the closing statement, the taxes, the appraiser
  4. The Money — what a 2-1 costs and what it buys
  5. How Common — a spike, then a niche, except in new construction
  6. 1980 Called — HUD studied this thirty years ago
  7. Buydown or Price Cut — the decision and the Texas contract blank

1. Prepaid Interest With a Nickname

Evidence: §0

A buydown is interest paid early. Somebody hands the lender money at closing. In return the lender charges the buyer a lower rate. That is the whole idea. Everything else is who pays, how much, and for how long.

There are three kinds. A permanent buydown lowers the rate for all thirty years. The money is called discount points. A temporary buydown lowers the rate for one to three years, then it steps up to the real rate. The names tell you the steps: a 2-1 is two points lower in year one and one point lower in year two. A 3-2-1 starts three points lower. A forward commitment is the builder's wholesale version, bought before any buyer exists. That one has its own page.

Who pays? The buyer can. The seller can. The builder can. The lender can. The federal rulebook names them all: consumer buydowns, third-party buydowns, lender buydowns, and split buydowns where the seller and buyer both chip in.

Say it this way: A buydown is prepaid interest. Somebody pays the bank now so the buyer pays less each month.

2. What the Rule-Makers Allow

Evidence: §1

Every loan type allows a temporary buydown. Every one of them makes the buyer qualify at the full rate, not the low one. That rule matters. It means a buydown never helps a buyer qualify. It only helps a buyer pay.

Fannie Mae: no more than three years, and the rate can step up no more than one point a year. No dollar cap on the buydown itself.

Freddie Mac: the starting rate can be no more than three points below the note rate, and the plan can run no more than three years. Not allowed on cash-out refinances.

FHA: sellers and other interested parties can pay up to six percent of the price toward the buyer's costs. That six percent includes "permanent and temporary interest rate buydowns." Over six percent and FHA calls it an inducement to purchase.

VA and USDA: both allow it. VA's four-percent concession limit is said to include the buydown escrow. USDA caps the temporary cut at two points and will not let the borrower fund it. Both of those are from secondary sources, so hedge them.

The cap is the thing to remember. On a conventional loan with less than ten percent down, the seller can contribute three percent of the price, total. A 2-1 costs about two percent. So a 2-1 fits and a full permanent buydown usually does not.

3. The Fine Print

Evidence: §2, §3, §7

The flyer. Federal advertising rules let a seller or lender advertise the low rate, but only if the ad also says how long it lasts, what the rate is after that, and the APR. That is why every builder flyer reads "3.99% first year (6.04% APR)." The second number is the law talking.

The closing statement. A seller-paid buydown shows up as a credit from the seller on the Closing Disclosure. A buyer-paid buydown changes the loan's disclosed rate.

Taxes. The IRS says a buyer can treat seller-paid points as if the buyer paid them, and may deduct them in the year paid if the usual tests are met. The IRS's own example: the seller pays one point, $1,000, and the buyer deducts it that year. The buyer lowers the home's basis by the same amount. For the seller, points are a selling expense. That is the rule for points. The temporary buydown escrow is not named in the publication, so send that question to a CPA.

The appraiser. Fannie Mae requires the seller's concessions on comparable sales to be reported when available. But the appraiser is told not to just subtract the cost dollar for dollar. The adjustment is what the market actually paid extra. Starting November 2026 the new appraisal form captures concessions in much more detail.

The warning. The consumer bureau's line: "the long-term rate and payments may be higher than a fixed rate mortgage without the buydown feature." A 2-1 is a loan whose payment goes up twice. Say that to the buyer.

4. The Money

Evidence: §4

A 2-1 costs the seller about two percent of the price. A 3-2-1 costs about four. A full permanent buydown can run six.

Here is a $350,000 loan at 6.5 percent. The real payment is $2,212 a month. Year one of a 2-1 is $1,773. Year two is $1,987. The seller's cost is the gap, escrowed at closing: about $7,966. The buyer saves $439 a month in year one.

Now take $10,000 of seller money on a $400,000 house at 7 percent and use it four ways. As a closing-cost credit it saves the buyer $10,000 at the table and zero per month. As a price cut it saves about $60 a month. As permanent points it saves about $250 a month for thirty years. As a 2-1 it saves more than $400 a month in year one. Same money. Four different results.

Points have a break-even. Divide the cost by the monthly saving. At 2026 pricing one point costs about $4,000 and saves about $65 a month, so it takes about five years to pay off. Three points cost $12,000, save about $192, and take about the same five years. Spending more does not make it pay off faster. It makes the bet bigger.

Say it this way: Two percent buys a 2-1. Four buys a 3-2-1. Points take five years to earn back.

5. How Common

Evidence: §5

When rates jumped in 2022, points came back. In September and October of that year seven in ten borrowers paid points. By January 2023 it was still 57 percent, at about $4,300 each. Before the pandemic it was half a point and $1,500.

Temporary buydowns spiked and faded. They were 7.6 percent of Freddie Mac's purchase loans in December 2022 and 2.8 percent by June 2023. Freddie Mac called them "a niche market."

Seller help of all kinds is now normal. Redfin says sellers gave concessions in 44 percent of sales in early 2025, and 46 percent in May 2026, a record for that month. In Dallas it was 49 percent. Texas REALTORS' own 2025 report says even homes with multiple offers had concessions 93 percent of the time: price cuts, repairs, warranties, closing costs. That report does not track buydowns at all.

Where the buydown really lives is new construction. About two-thirds of homes sold by the biggest builders in mid-2025 carried a permanent buydown. That story is on the builder page.

6. 1980 Called

Evidence: §6

Mortgage rates hit 18.63 percent in October 1981. The all-time low was 2.65 percent in January 2021. The high in the current cycle was 7.79 percent in October 2023. Last week it was 6.76.

Every time rates jump, the buydown comes back. In August 1980 a Sacramento builder ran an ad for a 9.75 percent mortgage when the going rate was 12.95. HUD wrote a two-volume study on seller-paid temporary buydowns in 1992, calling them "one of many creative financing techniques which enjoyed growing popularity in the late 1970s and early 1980s." The study asked whether the cost gets baked into the sale price. The short answer, from a secondhand read, is yes, and that the premium is not recovered on resale.

Say it this way: This is not a 2023 invention. It is a 1979 invention that comes back every time rates spike.

7. Buydown or Price Cut

Evidence: §8, §9

The rule of thumb:

  • The buyer is payment-tight and plans to refinance or move within five years. Give a 2-1.
  • The buyer is staying longer than five years. Give points.
  • The buyer is short on cash at closing. Give a closing-cost credit.
  • The buyer needs a smaller loan to qualify, or you need the comps to hold. Cut the price.

Same $10,000: a price cut buys $60 a month, a 2-1 buys $400. The only thing a price cut does better is show up in the comps.

In Texas the seller's contribution goes in one blank. The TREC contract, paragraph 12.A(1)(c): "an amount not to exceed $____ to be applied to other Buyer's Expenses." The word "buydown" is not in the form. The lender applies the money to the buydown escrow as a loan expense. Put the cap in the blank and let the lender do the rest.

One thing nobody has data on: whether 2-1 buyers actually refinance before the step-up. Do not promise it. Rates went up, not down, in the two years after the last spike.

Say it this way: Ask two questions. How long will you stay? How tight is the payment? The answers pick the tool.

What is still unverified

Check Loan Buydowns §"Not covered" before airing: the VA and USDA rule text, refinance behavior after 2-1s, a DFW buydown share, and whether an agent may pay for a buydown from commission.

Evidence file

Every claim, tagged

The prose above is only as good as the tag on each sentence here. Read the tag before you say the sentence out loud.

Narrative companion: Loan Buydowns - Curriculum — the read-through written to be taught. Web: https://concepts.rycolston.com/loan-buydowns/ Sibling: Builder Rate Buydowns covers the builder-specific version (forward commitments, the concession-cap exemption, the Texas builder roster). This file is the general tool: what a buydown is, what the rule-makers allow, what it costs, and when a seller should use one instead of a price cut.

Loan Buydowns — Evidence File

Every claim below carries a confidence tag. Read the tag before you say the sentence out loud.

Tag Means Safe to teach?
P Primary. I pulled the original document this session and read the sentence myself Yes — strongest tier
V Verified. Two independent primaries agree, or my own arithmetic on a primary input Yes
S Secondary. A reporter, a lender blog, or a subagent quoting the original. I did not open the original Only with a hedge
? Unsourced. Believed true, never checked No. Do not say on air.

0. What a buydown is, in one paragraph P

Someone pays the lender money up front so the borrower's interest rate is lower. If the lower rate lasts the whole loan, it is a permanent buydown and the money is called discount points. If the lower rate lasts one to three years and then steps up to the real rate, it is a temporary buydown, named for its steps: 2-1 (two points lower in year one, one point lower in year two), 3-2-1, or 1-0. The payer can be the buyer, the seller, the builder, or the lender. Regulation Z names all three: "consumer buydowns," "third-party buydowns" (a seller "or other third party"), and "lender buydowns," plus "split buydowns" where seller and buyer both pay.

Teaching line: A buydown is prepaid interest. Somebody pays the bank now so the buyer pays less each month. The only questions are who pays, how much, and for how long.

1. The rules, by loan type

1.1 Fannie Mae P

"An interest rate buydown plan must provide for: a buydown period not greater than 3 years, and increases of not more than 1% in the portion of the interest rate paid by the borrower in each 1-year interval." "The lender must qualify the borrower based on the note rate without consideration of the bought-down rate." "Fannie Mae does not place a limit on the total dollar amount of an interest rate buydown." Also: allowed "provided the rate reduction does not exceed 3%, and the rate increase will not exceed 1% per year"; "The buydown plan must be a written agreement between the party providing the buydown funds and the borrower"; and the money is escrowed — "Funds for buydown accounts must be deposited into custodial bank accounts… Buydown funds cannot be included in accounts with the lender's other corporate funds. The borrower's only interest in buydown funds is to have them applied toward payments as they come due."

1.2 Freddie Mac P

"For mortgages with a buydown plan, the initial interest rate may not be more than three percentage points below the Note Rate. The buydown plan may not extend for more than three years after the first scheduled payment date." Fixed-rate borrowers qualify "using monthly payments calculated at the Note Rate." Not allowed on: 3/6-month ARMs, cash-out refinances, "no cash-out" refinances "with a buydown plan funded from a lender credit derived from an increase in the interest rate," investment property, or Home Possible loans on 3–4 unit properties.

1.3 FHA P

Interested parties (sellers, agents, builders, lenders) "may contribute up to 6 percent of the sales price toward the Borrower's origination fees, other closing costs, prepaid items and discount points. The 6 percent limit also includes: Interested Party payment for permanent and temporary interest rate buydowns, and other payment supplements…" Anything over 6% "is considered an inducement to purchase." Contributions "may not be used for the Borrower's MRI" (minimum required investment — the down payment).

  • Source: HUD Handbook 4000.1, Interested Party Contributions (TOTAL and Manual sections), 1,081-page PDF fetched and searched 2026-09-16.
  • Qualifying at the note rate on FHA temporary buydowns: "The Mortgagee must use the Note rate when calculating principal and interest for Mortgages that involve a temporary interest rate buydown." S — the agent read this on a mirror of the Handbook, not hud.gov.

1.4 VA S

VA permits temporary buydowns (its Home Loans site has a "Temporary Buydown" page in the loan menu P for the page's existence). Secondary sources say the buydown escrow counts inside VA's 4% seller-concession limit and the borrower qualifies at the full note rate. The circular number (reported as 26-22-5, April 2022) did not resolve to a readable PDF — ? for the exact citation.

1.5 USDA S

Reported from HB-1-3555 Chapter 11: underwritten at the full note rate; funds may come from seller, lender or third party but not the borrower; the rate may not be more than 2% below the note rate; the account must be fully funded at origination. The PDF returned 403 twice — S.

1.6 Summary table

Loan Max temporary cut Max years Qualify at Concession cap that buydown money counts against
Fannie Mae P 1%/yr step, no dollar cap 3 note rate 3 / 6 / 9% by LTV
Freddie Mac P 3 points below note 3 note rate (same IPC structure) S
FHA P — — note rate S 6% (includes permanent + temporary)
VA S — — note rate 4%
USDA S 2 points — note rate —

2. Disclosure and advertising — Regulation Z

2.1 Advertising a bought-down rate P

"Buydowns. When a third party (such as a seller) or a creditor wishes to promote the availability of reduced interest rates (consumer or seller buydowns), the advertised annual percentage rate must be determined in accordance with the commentary to §1026.17(c)(1) regarding the basis of disclosures in buydown transactions." And the general rule: an advertisement for credit secured by a dwelling that states a rate "shall not state any other rate, except that a simple annual rate… may be stated in conjunction with, but not more conspicuously than, the annual percentage rate."

  • Source: Regulation Z §1026.24 and its Official Interpretation, fetched 2026-09-16. The same commentary allows the low number on the flyer, with two strings: "The seller or creditor may advertise the reduced simple interest rate, provided the advertisement shows the limited term to which the reduced rate applies and states the simple interest rate applicable to the balance of the term." And the base rule: "If an advertisement states a rate of finance charge, it shall state the rate as an 'annual percentage rate,' using that term."

  • Plain words: "3.99%" on a flyer is legal only if the ad also says how long 3.99% lasts, what the rate is after that, and the APR. This is why builder flyers read "3.99% first year (6.04% APR)."

2.2 On the Closing Disclosure P

Third-party (seller) buydowns: disclosures are based on the legal obligation between the consumer and the creditor; "the seller-paid amount is, however, disclosed as a credit from the seller in the summaries of transactions disclosed pursuant to §1026.38(j) and (k)." Consumer buydowns "must be reflected as an amendment to the contract's interest rate provision." Split buydowns: "the creditor must include the portion paid by the consumer in the finance charge."

3. Taxes P

IRS Publication 936, "Points paid by the seller": "The buyer reduces the basis of the home by the amount of the seller-paid points and treats the points as if the buyer had paid them. If all the tests under Deduction Allowed in Year Paid… are met, the buyer can deduct the points in the year paid." For the seller, points are "a selling expense that reduces the amount realized by the seller."

  • Source: IRS Publication 936, Home Mortgage Interest Deduction, fetched 2026-09-16.
  • The publication's own example: "the person who sold you your home also paid one point ($1,000) to help you get your mortgage. In the year paid, you can deduct $1,750 ($750 of the amount you were charged plus the $1,000 paid by the seller)… You must reduce the basis of your home by the $1,000 paid by the seller."
  • Hedge on air: this covers points (a permanent buydown). Temporary-buydown escrow is not addressed by name in Pub 936. Say "talk to your CPA" for the 2-1.

4. What it costs

4.1 The rule-of-thumb costs P

John Burns Research, Oct 2023: "Full-term buydown: Builder cost can be up to 6% of the home sales price. 3-2-1 buydown: ~4% of the home sales price. 2-1 buydown: ~2%." Source: JBREC, fetched 2026-09-16 (in the sibling run).

4.2 My own arithmetic V — 30-year fixed, 6.5% note rate

Loan Full P&I Year 1 at 4.5% Year 2 at 5.5% 2-1 cost Year-1 saving / mo
$350,000 $2,212 $1,773 $1,987 $7,966 $439
$450,000 $2,844 $2,280 $2,555 $10,242 $564

The cost is the sum of the 24 monthly payment differences, escrowed at closing and drawn monthly. Computed 2026-09-16 from the standard amortization formula.

4.3 A lender's worked example, $400,000 at 7% P

Yahoo Finance (calculations by RMC Home Mortgage), 2026-07-06 — a $400,000 house, 5% down, 7% rate, and $10,000 of seller money used four ways:

Use of $10,000 Up-front cash saved Monthly saving Verdict in the source
Closing-cost credit ~$10,000 $0 "does not affect the monthly payment"
Permanent buydown $0 ~$250/mo "Strong if staying 5+ years"
2-1 buydown $0 ~$400+/mo (yr 1) "Best if planning to refi"
Price reduction $500 ~$60/mo "Modest"

4.4 Points break-even P

Bankrate: "Cost of points ÷ monthly payment savings = break even point. From the previous example: $4,000 / $133 = 30 months." LendFriend Mortgage (citing Q1 2026 Freddie Mac data): one point for $4,000 saves "about $65" a month, "a breakeven period of just over 60 months"; three points for $12,000 save "around $192" and "the breakeven period remains close to 60 months. Spending more money doesn't necessarily shorten the breakeven timeline. It simply increases the size of the bet."

  • Sources: Bankrate, Mortgage points and LendFriend, both fetched 2026-09-16. The two examples disagree on months because they assume different rate cuts per point — which is the point: what one point buys changes daily.
  • "One point ≈ 0.25% of rate" is a market convention, not a rule; sources put it anywhere from 0.125% to 0.375%. S

5. How common buydowns are

5.1 Temporary buydowns: a spike, then a niche P

Freddie Mac, 2023-07-31: "temporary buydown mortgages comprised 2.8% of Freddie Mac funded loans in June 2023, up from near zero a year ago but down from a peak of 7.6% in December 2022. However, given the cost, the share of lenders offering these loans and their geographic concentration, temporary rate buydowns remain a niche market and seem unlikely to be a meaningful source of additional homebuyer demand."

5.2 Permanent buydowns: most borrowers paid points in the 2022 rate shock P

Black Knight, 2023-02-06: in the third week of January 2023, "57% of borrowers locking in rates paid at least a half-point as part of a permanent buydown, 44% paid at least a full point, and nearly a quarter bought down their rates with 2 points or more." At the peak, "September–October 2022, … as many as 7 in 10 (71%) borrowers paid points." Average 1.25 points, "$4,300 per borrower… vs. $6,900 for the week ending Oct. 1, 2022." Pre-pandemic (2018–2020) average: "closer to 0.5, with a corresponding cost of around $1,500." Temporary buydowns: "at least 3% of purchase borrowers."

5.3 Seller concessions of all kinds: nearly half of sales P

Redfin, Q1 2025: "Home sellers gave concessions to buyers in 44.4% of U.S. home-sale transactions in the first quarter… up from 39.3% a year earlier, and… just shy of the 45.1% record high at the start of 2023." Dallas: 49.3% (Q1 2025) vs 50.0% a year earlier; Houston 46.0%; Austin 45.3%. "Roughly one in five homes (21.5%)… had a final sale price below the asking price in addition to a concession."

May 2026: "46% of Home Sellers Gave Concessions to Buyers in May, the Highest Share on Record For That Month." A Dallas Redfin agent in the release: "There are two main reasons concessions are so prevalent: Buyers have leverage, and some sellers are pricing too high."

5.4 Texas sellers, 2025 P

Texas REALTORS 2025 Homeselling Experience Report (release 2026-02-18): "59% of the homes attracted multiple offers. Concessions were part of 93% of those sales, with 52% of sellers lowering the asking price, 45% of sellers making requested repairs, 42% providing a home warranty, and 37% paying some closing costs." Rate buydowns are not a tracked category in this report.

5.5 New construction is where the buydown lives P

64% of new homes sold by the largest builders carried a permanent buydown as of June 2025 (AEI). See Builder Rate Buydowns §4.7. No DFW-specific or NTREIS buydown share exists in any source found — ?.

6. History — the 1980s did this first

6.1 The rate backdrop P

Freddie Mac's weekly survey, 1971 to 2026-09-10:

Moment 30-year rate
All-time high, 1981-10-09 18.63%
1986 range 9.29% – 10.99%
All-time low, 2021-01-07 2.65%
2022 range 3.22% (Jan) → 7.08% (Oct)
2023 high, 2023-10-26 7.79%
2026 range so far 5.98% (Feb 26) → 6.76% (Sep 10)

6.2 HUD studied seller-paid buydowns in 1992 P

HUD's Office of Policy Development and Research, Seller Financing of Temporary Buydowns, Part 1 (accepted November 1992): "A temporary buydown is one of many creative financing techniques which enjoyed growing popularity in the late 1970s and early 1980s. Under a typical temporary buydown, a homebuyer's mortgage payments during the early years of the mortgage are subsidized by the seller…" The study measured "the extent to which house prices include the capitalized value of temporary buydowns. A companion report examines the effect of buydowns on default probabilities."

  • Source: HUD USER, abstract page fetched 2026-09-16; the two PDFs (127 and 97 pages) were not opened. The agent's summary of the findings — that the premium "would not be recaptured at resale" and that buydowns "can facilitate larger loans, resulting in higher housing expense burdens after the buydown subsidy has terminated" — is S.

6.3 The 1980 flyer P

ResiClub, 2024: a Sacramento Bee ad from August 19, 1980 advertised a builder's 9.75% mortgage rate when the 30-year fixed averaged 12.95% — the same tool, the same gap, forty-five years ago.

Teaching line: Buydowns are not a 2023 invention. HUD wrote a two-volume study on seller-paid buydowns in 1992, about a boom that started in 1979. Every time rates jump, the coupon comes back.

7. The catches

7.1 Payment shock P

The CFPB, quoted by National Mortgage News: "Although the initial interest rate and payments are lower, the long-term rate and payments may be higher than a fixed rate mortgage without the buydown feature." Buydowns "could lead to payment shock, as borrowers will have to make higher payments over time."

7.2 The appraiser must be told, and must not just subtract P

Fannie Mae B4-1.3-09: "The dollar amount of sales or financing concessions paid by the seller must be reported for the comparable sales if the information is reasonably available." But: "Adjustments based on dollar-for-dollar deductions that are equal to the cost of the concessions to the seller, as a strict cash equivalency approach would dictate, are not appropriate." The adjustment is what the appraiser finds the market actually paid extra.

  • Source: Fannie Mae Selling Guide B4-1.3-09, fetched 2026-09-16.
  • The new URAR under UAD 3.6 (mandatory for Fannie/Freddie deliveries by November 2, 2026) captures concessions "in considerably more detail." S

7.3 Unused escrow on early payoff S

Lender explainers say the remaining buydown escrow is applied to the principal balance if the loan is refinanced or paid off early. No agency text found stating this — S, and the buydown agreement itself governs.

7.4 The refinance bet has no data ?

No Freddie Mac, Urban Institute or MBA study was found on whether 2-1 buyers actually refinanced before the step-up. Do not claim they did or did not.

8. Texas contract mechanics P

The blank that carries it

TREC's current One to Four Family Residential Contract (Resale), form 20-18, ¶12.A(1)(c): Seller shall pay "an amount not to exceed $____ to be applied to other Buyer's Expenses." Buyer's Expenses (¶12.A(2)) include "origination charges… all prepaid items… underwriting fee… expenses incident to any loan." The word "buydown" appears nowhere in the form.

The prior form, 20-17, ¶12.A(1)(b): "Seller shall also pay an amount not to exceed $____ to be applied in the following order: Buyer's Expenses which Buyer is prohibited from paying by FHA, VA, Texas Veterans Land Board or other governmental loan programs, and then to other Buyer's Expenses as allowed by the lender."

  • Sources: TREC 20-18 and TREC 20-17, PDFs fetched and text-extracted 2026-09-16.
  • Plain words: a seller-paid buydown goes in the 12.A(1)(c) blank as a dollar cap. The lender applies it to the buydown escrow as a loan expense. The Third Party Financing Addendum FAQ from Texas REALTORS says nothing about buydowns P — the agent fetched it and confirmed.

Can an agent pay for the buydown from commission? ?

No source found either way. NAR's RESPA FAQ (fetched by the agent) covers referral fees and affiliated businesses only. Do not air.

9. Buydown vs. price cut — the decision

The same seller dollars, four ways P + V

From §4.3 (a $10,000 seller credit on a $400,000 house at 7%): a closing-cost credit changes the payment by $0; a price cut changes it by about $60 a month; a permanent buydown by about $250; a 2-1 by $400+ in year one. From §4.2 (my math at 6.5%): a 2-1 on a $350,000 loan costs the seller about $7,966 and cuts year one by $439 a month. An $8,000 price cut on the same loan cuts the payment by about $50.

The crossover S

One agent-sourced example: on a $450,000 home a 3-2-1 costs about $20,169; the same dollars as a price cut lower the payment about $127 a month; "the crossover is around year 7 — after that, the price reduction wins." Not opened — S, but the shape is right: temporary buydowns win early, price cuts win late.

The decision rule

  • Buyer is payment-constrained and expects to refinance or move within about five years → 2-1 buydown.
  • Buyer is staying past the points break-even (roughly five years at 2026 pricing, §4.4) → permanent buydown.
  • Buyer is cash-constrained at closing → closing-cost credit.
  • Buyer needs the loan smaller to qualify, or the comps need protecting → price cut.
  • Any of the above beats "pay for both": the concession cap (§1) is the ceiling on the whole stack.

Teaching line: Same ten thousand dollars. As a price cut it buys sixty dollars a month. As a 2-1 it buys four hundred. The only thing a price cut does better is show up in the comps.

Not covered ? — do not air

  • VA circular number and text. USDA chapter text. Both S from agents; the PDFs did not open.
  • Whether 2-1 buyers actually refinance before the step-up. No study found.
  • A DFW or Texas buydown share (as opposed to "concessions"). None exists in any source found.
  • Agent-paid buydowns under RESPA. No source.
  • The HUD 1992 findings in detail. PDFs not opened.

Method, and what it cost

  • Session 1 (2026-09-16): three sonnet agents (rules / data / practice) returned URL lists in about four minutes; the session's shared WebSearch budget ran out during their last legs. Then twenty-one curl fetches: two Fannie Mae Selling Guide pages, the Freddie Mac product page and 2023 research note, the 1,081-page FHA Handbook PDF, two CFPB Regulation Z pages, IRS Pub 936, the Black Knight release, two Redfin releases, the Texas REALTORS release, HUD USER, ResiClub, Yahoo Finance, Bankrate, LendFriend, National Mortgage News, two TREC contract PDFs, and the Freddie Mac PMMS history file. Every P above is a grep hit in one of those.

Open questions worth chasing

  1. Open HUD's 1992 Part 1 PDF (127 pages) — the capitalization estimate is the best historical number in the topic.
  2. Find the VA circular on temporary buydowns by its real number and quote the 4% rule from VA text.
  3. The Texas REALTORS report tracks four concession types; ask them (or NTREIS) whether buydowns can be added.