Price Cut or Rate Buydown Calculator
Show a seller what the same dollars do as a price cut, a permanent rate buydown, a 2-1 buydown or a closing cost credit, on conventional, FHA and VA loans.
Same seller dollars, very different payments
Before a seller cuts the price, it is worth seeing what that same money does as a rate buydown or a closing cost credit. Enter the contract price, the seller money on the table, the buyer's loan type and down payment, and the calculator compares the buyer's monthly savings from each option side by side. The seller spends the same amount in every case.
It is built for listing agents, buyer's agents and sellers who want numbers to put in front of a client before countering.
What it compares
- Price cut. Lowers the loan amount and the recorded sale price.
- Permanent rate buydown. Seller-paid discount points lower the rate for the life of the loan, unless the buyer refinances.
- 2-1 temporary buydown. The seller's money funds an escrow account that covers part of the payment for two years. The buyer still qualifies at the full rate, so it helps cash flow, not approval.
- Closing cost credit. Covers the buyer's closing costs and prepaids.
What sellers should know
A price cut shows up in the comps. The recorded sale price drops, which can affect future appraisals nearby. A concession keeps the contract price where it is.
Concessions have limits. Price cuts do not. Conventional loans cap seller contributions at 3% with under 10% down, 6% with 10% to under 25% down, and 9% with 25% or more down. FHA allows 6%. VA allows 4%, not counting discount points or normal closing costs. Limits use the lower of price or appraised value, and credits can never exceed the buyer's actual costs.
The best choice depends on how long the buyer keeps the loan. If rates drop and the buyer refinances in a couple of years, a temporary buydown or a credit may have been the better use of the money.
The calculator shows principal and interest only and uses example pricing, not a rate quote. Buydown math changes with daily pricing, loan type and the buyer's file, so before you counter, Kyle can price the real options for a specific buyer. More on how a rate buydown works.
Common questions
Is a rate buydown better than a price cut?
Often, for the buyer's monthly payment. In the calculator's example, the same seller money lowers the payment about 2.1 times as much as a price cut. The answer depends on the loan, the rate and how long the buyer keeps the loan, which is why the tool lets you enter your own deal.
How much can a seller contribute toward a buyer's costs?
Conventional loans allow 3% with under 10% down, 6% with 10% to under 25% down, and 9% with 25% or more down. FHA allows 6%. VA allows 4%, not counting discount points or normal closing costs. Limits use the lower of price or appraised value and can never exceed the buyer's actual costs.
What is the difference between a 2-1 buydown and a permanent buydown?
A 2-1 buydown uses the seller's money to cover part of the payment for the first two years, and the buyer still qualifies at the full rate. A permanent buydown pays for discount points that lower the rate for the life of the loan, unless the buyer refinances.
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