Are higher mortgage rates slowing buyer momentum for your Marin listing? In a high-cost market, even a small shift in the monthly payment can decide who writes an offer and who passes. You want to keep price strong while still making the numbers work for buyers. In this guide, you will learn what seller buydowns are, how the math works, when they make sense in Marin, and how to compare them to a simple price cut. Let’s dive in.
What a seller buydown is
A seller buydown is a concession where you pay money at closing to lower the buyer’s mortgage rate. The funds typically go into escrow and are applied by the lender to reduce payments.
Two common versions:
- 2-1 temporary buydown. The buyer pays 2 percentage points less in year 1, 1 point less in year 2, then the note rate for the rest of the loan.
- Permanent buydown. You pay discount points to reduce the interest rate for the life of the loan.
Why buydowns matter in Marin
Marin’s price points often require larger loans. Many buyers use jumbo financing, and affordability is very sensitive to rate. A short-term payment drop can widen your buyer pool, help with early cash flow, and support a clean negotiation where price holds while you offer a targeted concession.
In a fast market, you may not need a buydown at all. In a shifting market with longer days on market, it can be the difference between a hesitant buyer and a confident offer.
How a 2-1 buydown works
- You give a closing credit that the lender places in a buydown reserve.
- The reserve is used to cover the difference between the full payment and the reduced payment for 24 months.
- Year 1 payment reflects the note rate minus 2 percentage points. Year 2 reflects minus 1 point. After month 24, the payment steps up to the note rate.
Lenders handle the math and draw the reserve each month. The buyer’s payment is lower during the buydown period, then reverts to the contracted rate.
Permanent buydown basics
- You pay discount points at closing. One point equals 1 percent of the loan amount.
- The rate reduction per point varies by lender and market. A common rule of thumb is around a quarter point per point, but it can change.
- This option costs more upfront than a temporary buydown, but it lowers the payment for the life of the loan and may be easier to underwrite if the lender qualifies the borrower at the reduced rate.
Cost vs price cut: a Marin example
Use this as a template and always confirm exact numbers with the buyer’s lender.
Assumptions for illustration:
- Sale price: 1,250,000 dollars
- Down payment: 20 percent → loan amount 1,000,000 dollars
- Term: 30 years
- Note rate: 6.00 percent
- 2-1 buydown: 4.00 percent in year 1, 5.00 percent in year 2, then 6.00 percent
Monthly principal and interest for a 1,000,000 dollar loan:
- At 6.00 percent: 5,995 dollars
- At 5.00 percent: 5,368 dollars
- At 4.00 percent: 4,774 dollars
Buyer savings with a 2-1 buydown:
- Year 1: 5,995 minus 4,774 equals 1,221 dollars per month, about 14,652 dollars over 12 months
- Year 2: 5,995 minus 5,368 equals 627 dollars per month, about 7,524 dollars over 12 months
Approximate seller cost to fund the 2-1: 14,652 plus 7,524 equals 22,176 dollars.
Compare to a straight price cut of 22,176 dollars at a 6.00 percent rate:
- Payment reduction is about 133 dollars per month, and it is permanent.
What this means:
- A 2-1 buydown creates a large short-term payment drop for the buyer with a defined one-time cost to you.
- A price cut gives a smaller but permanent monthly reduction.
- Pick the option that aligns with the buyer’s needs and your pricing strategy.
When a buydown makes sense
- You want to preserve list price but help buyers with early cash flow.
- The buyer is income-qualified and needs short-term relief for moving costs or a transition.
- The market is slower and targeted concessions bring more traffic and stronger offers.
- The lender may allow qualification at the reduced rate. Always confirm first.
When to consider other options
- The lender requires the buyer to qualify at the full note rate. A 2-1 then helps cash flow, not qualification.
- You prefer not to make a lump-sum payment at closing.
- Program rules restrict seller concessions for the buyer’s loan type.
- A simple price reduction or seller-paid closing costs would meet the same goal with less complexity.
What to confirm with the lender
Before you advertise or agree to a buydown, ask the buyer’s lender to confirm:
- Are buydowns allowed for this loan product, including jumbo programs?
- Will the buyer be qualified at the reduced buydown rate or at the full note rate?
- What are the seller concession limits, and does the buydown count toward the cap?
- What documentation is required in the purchase agreement and escrow instructions?
- How will funds be held and disbursed during servicing?
Also advise both parties to speak with their tax professionals about how discount points or prepaid interest are treated.
Negotiation and marketing tips
- Offer a defined credit: “Seller to fund a 2-1 buydown up to a set dollar amount. Buyer to consult lender for qualification.” Keep it factual and avoid promises about qualifying.
- Show first-year, second-year, and thereafter monthly payment scenarios as illustrations. Label them as examples and direct buyers to their lender for actual figures.
- Use a buydown to keep price firm in a negotiation while addressing buyer affordability.
- Consider tying the buydown to specific contingencies or timelines to encourage commitment.
Step-by-step checklist for sellers
- Confirm the buyer’s lender and point of contact early.
- Ask the lender about eligibility, qualifying rate, concession limits, and documentation.
- Request a written estimate of the seller deposit required for the buydown.
- Compare that cost to an equivalent price reduction using the example math.
- Add specific language to the contract: exact dollar amount or cap, deposit timing, and lender-required terms.
- Coordinate with escrow so funds are handled correctly and paperwork is complete.
- Keep records for closing and tax accounting.
- In marketing, stay neutral and precise. Do not imply guaranteed qualification.
Marin-specific notes to keep in mind
- Jumbo loans are common and may have different rules for seller concessions. Policies can vary by lender.
- Appraisers value based on comparable sales. A buydown is a concession and does not increase appraised value.
- Buyer profiles can include move-up buyers and relocators who are income-qualified but managing near-term expenses. A temporary buydown can be a strong fit.
Permanent buydown at a glance
If you aim for a lasting payment drop, a permanent buydown may be attractive. For example, if a 0.50 percent rate reduction costs about 2 points on a 1,000,000 dollar loan, your cost would be about 20,000 dollars. Exact pricing changes by day and lender, so always obtain a live quote. This route can be easier for underwriting if the lender qualifies the buyer at the lower rate.
Bottom line
A seller buydown is a precise tool for today’s Marin market. Temporary 2-1 structures provide meaningful short-term relief that can motivate offers without cutting price. Permanent buydowns cost more upfront but deliver lasting payment savings and may help with qualification if the lender allows it. Model both choices, confirm lender rules, and choose the option that best supports your sale goals.
If you want help running a custom scenario or deciding between a buydown and a price cut, our integrated brokerage-plus-mortgage team can coordinate the numbers and the contract details for a smooth close.
Ready to talk strategy for your Marin sale? Connect with the family team at Now Homes to request a free home valuation and explore lender-coordinated buydown options.
FAQs
What is a seller buydown in Marin real estate?
- It is a seller-paid concession at closing that lowers the buyer’s mortgage rate temporarily or permanently to improve affordability.
How does a 2-1 buydown reduce payments?
- The buyer pays 2 percentage points less in year 1 and 1 point less in year 2, with the seller’s funds covering the difference before the loan returns to the note rate.
Can a buydown help a buyer qualify for a loan?
- Sometimes, if the lender allows qualifying at the reduced buydown rate; otherwise it mainly improves early cash flow, not approval.
Are buydowns allowed on jumbo loans in Marin?
- Many jumbo programs allow seller concessions, but limits and rules vary by lender, so you need written lender confirmation.
Is a price reduction better than a temporary buydown?
- A price cut lowers payments a little every month permanently, while a 2-1 buydown delivers larger short-term savings for a defined upfront cost.
What happens after a temporary buydown ends?
- The payment steps up to the loan’s note rate, so the buyer should plan for the higher payment starting in month 25.
