Calculator
How much does a rate buydown save?
A seller or builder offers to buy down your rate. Is a temporary 2-1 worth more to you than permanent points? Here is the dollars-and-cents comparison.
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Questions people ask
- Who pays for a buydown?
- Usually the seller or builder, as a concession negotiated in the purchase contract. A buyer can pay for permanent points; temporary buydowns are generally funded by an interested party.
- Do I qualify at the lower rate?
- No. Lenders underwrite you at the full note rate, so a temporary buydown helps your cash flow in the first years but does not increase how much you can borrow.
- Is a temporary buydown or permanent points better?
- It depends on how long you keep the loan. A temporary buydown front-loads the savings; points pay off slowly but last. Compare the break-even month to how long you expect to stay, and consider whether rates may fall enough to refinance.
- What is the VA 4% rule?
- VA limits seller concessions to 4% of the reasonable value. Prepaid taxes and insurance, paying the funding fee, paying off the buyer's debts and funding a temporary buydown all count toward it. The seller paying normal closing costs and discount points does not.
Sources
- VA: Funding fee and closing costs (4% seller concession limit) (opens in a new tab)
- VA Pamphlet 26-7, Chapter 8: Borrower fees and charges (opens in a new tab)
- Fannie Mae Selling Guide B2-1.4-04, Temporary Interest Rate Buydowns (opens in a new tab)
- Fannie Mae Selling Guide B3-4.1-02, Interested Party Contributions (opens in a new tab)
- CFPB: What are discount points? (opens in a new tab)