A lower price or a lower rate?

Temporary buydown

The 2-1 buydown

The seller puts money into an escrow account at closing. That account covers part of your payment for the first two years. You pay as if your rate were 2% lower in year one and 1% lower in year two. In year three the account is empty and you pay the real rate for the rest of the loan.

Your actual loan never changes. The rate on your note is the rate you were quoted. The escrow account is just prepaid help, spread out.

• Year one costs the least, which helps if you are furnishing a house or expect your income to climb.
• You still have to qualify at the full note rate. Lenders do not count the discount toward what you can afford.
• If you refinance or sell before the account runs out, the money left in it goes toward your loan balance. It is not lost.
• A 1-0 buydown does the same thing for one year. A 3-2-1 does it for three and costs considerably more.

Permanent buydown

Discount points

You pay money up front and the lender lowers your rate for the life of the loan. One point costs 1% of your loan amount. What that buys moves with the market, so treat any number here as a starting estimate and get the real quote from your lender.

The math is a break-even. Divide the cost by what you save each month, and that is how many months it takes to get your money back. Stay past that point and the rest is profit.

• Best when you plan to stay a long time and rates are not obviously headed down.
• The savings are permanent, which no other option here can say.
• If you refinance before you break even, you paid for a rate you did not keep.

Price reduction

Just pay less for the house

The simplest option and the easiest to underrate. A lower price means a smaller loan, a smaller payment, less property tax, and less insurance, all of it permanent. It also means you start with more equity on day one.

• The savings are smaller each month than a buydown, because you are spreading the help across 360 payments instead of front-loading it.
• It is the only option that lowers your taxes and insurance too.
• The house still has to appraise. A price cut that brings the contract under appraised value strengthens your position.

Worth knowing

Other moves in this market

• Ask for closing costs instead. If cash to close is the thing standing between you and the house, seller-paid closing costs solve the real problem. A better rate does you no good if you cannot get to the table.
• Look at houses that have been sitting. A listing past 45 days has a seller who is already thinking about what it will take. That is where concessions actually get agreed to.
• Refinancing later is real, but it is not free. Plan on closing costs again, and on rates being whatever they are that year. Do not buy a payment you can only afford if you refinance.
• Combine them. There is no rule that says the help has to go all one place. Part to the rate and part to closing costs is common.