If you could lower your monthly payment without cutting the sales price, would you take a closer look at a home in Far North Dallas? With rates still above pandemic lows, smart use of seller credits and rate buydowns is helping buyers breathe easier and helping sellers stand out. In this guide, you’ll learn what temporary and permanent buydowns are, how program limits work, and how to structure a clean, compliant deal in our local market. Let’s dive in.
What a rate buydown is
A rate buydown is money paid at closing to reduce your mortgage payment. It comes in two main forms:
- Temporary buydown. A seller or other party funds a set period of reduced payments, such as a 2-1 or 3-2-1 structure. The lender underwrites you at the full note rate and a servicer applies the subsidy each month. See how lenders treat these in the Fannie Mae Selling Guide.
- Permanent buydown (points). Discount points are paid at closing to permanently lower your interest rate. For taxes, seller-paid points are treated as if you paid them, subject to IRS rules in Publication 530.
Seller credits, also called interested-party contributions, can cover closing costs, buydowns, and points. Loan programs cap how much a seller can contribute, and those caps matter to your approval and appraisal. A quick lender check on limits like these saves time and headaches. Reference common caps in this contribution matrix summary.
Why credits work here now
Inventory has ticked up across DFW, and homes are spending longer on the market, which has led to more seller-paid incentives and creative financing in 2024 and 2025. Local coverage notes that Dallas homes are sitting longer and price growth has cooled, which encourages concessions like buydowns to reduce payment shock for buyers. You can read the recent snapshot in this Axios report on Dallas trends.
In Far North Dallas and nearby Collin County suburbs like Plano, Frisco, and McKinney, seller credits can be the difference between a pass and a showing. Sellers preserve price optics while helping buyers ease into payments, and buyers gain near-term affordability without waiting on rate declines.
Program rules to know
Conventional loans
Agency guidelines allow temporary buydowns when funds are fully escrowed and documented, and lenders qualify you at the note rate. Seller credits count toward program caps that typically vary by LTV. See the temporary buydown rules in the Fannie Mae Selling Guide and typical cap ranges in this contributions matrix.
FHA loans
FHA treats seller contributions, including temporary and permanent buydowns, as interested-party contributions and caps them at 6 percent of the lesser of the appraised value or price. Review the FHA policy in this Handbook reference.
VA loans
VA allows the seller to pay normal closing costs plus certain concessions, with a commonly cited cap of 4 percent for concession items defined in VA guidance. Because VA has specific lists of what counts, ask your lender exactly what qualifies. See the VA lender guidance.
USDA loans
USDA programs often permit up to 6 percent for eligible costs. Lender overlays can apply, so confirm early. Here is a summary of recent USDA guidance and updates.
How buydown funds get handled
For temporary buydowns, lenders require the full subsidy to be deposited into a custodial escrow account before the loan is sold, and the servicer disburses the monthly subsidy to bridge the difference between the note payment and the reduced payment. You will still be qualified at the permanent note rate. These mechanics are laid out in the Fannie Mae Selling Guide.
Cost example on a Collin County price point
Consider a 30-year fixed mortgage with a $400,000 loan at a 7.00 percent note rate using a 2-1 buydown. Your effective rate is 5.00 percent in year one, 6.00 percent in year two, then 7.00 percent for the remaining term. Approximate payments are $2,147 at 5 percent, $2,398 at 6 percent, and $2,661 at 7 percent.
The subsidy equals the difference the first two years and totals about $9,323, which is roughly 2.33 percent of the $400,000 loan amount. Lenders calculate the exact escrow amount and schedule, but this gives you a realistic range for a mid-range Far North Dallas purchase. It is often less expensive for a seller than cutting price enough to deliver the same early payment relief.
Credits vs. price cuts
- If you want lower payments in the first 1 to 3 years, a temporary buydown funded by the seller can help you ease into the mortgage while preserving the seller’s list price.
- If your goal is the lowest long-term cost, a permanent rate reduction using points or a price reduction may pencil out better.
- Ask your lender for side-by-side scenarios, then compare against seller net proceeds. In today’s market, many DFW sellers use credits to fund buydowns when demand is slower.
How to structure your deal
For buyers
- Confirm your loan program and the exact seller credit cap with your lender.
- Decide whether a temporary buydown, points, or standard closing-cost credit serves your plan.
- Make your offer explicit about the credit amount and permitted uses. If requesting a temporary buydown, include a buydown agreement addendum so title and the lender can set up escrow correctly. See examples of clear contract phrasing in this seller concession overview.
For sellers
- Price with a credit strategy in mind and model net proceeds with and without a buydown.
- Disclose and document the credit so it appears properly on the Closing Disclosure. In Texas, sellers typically cover broker commissions and may allocate concessions instead of lowering price. Here is a simple explainer on Texas closing costs.
- Confirm with the buyer’s lender that the credit fits program caps and that the buydown escrow will be funded before closing.
Appraisal and LTV watchouts
If contributions exceed program limits, the lender may treat the excess as a sales concession and adjust the appraised value or loan terms. That can change LTV and cash to close. Confirm caps early with your lender and lean on a clear summary of typical limits like this contribution matrix.
Tax treatment in brief
Seller-paid points are treated as if you paid them. If IRS tests are met, you may deduct points as prepaid interest in the year paid, otherwise they are amortized over the loan term. Read the homeowner rules in IRS Publication 530 and speak with a tax professional about your specific situation.
Quick checklist
- Identify your loan type and confirm the seller credit cap with your lender.
- Choose temporary buydown, points, or a standard closing-cost credit based on your timeline and budget.
- Make the contract explicit about credit amount and allowed uses, and attach a buydown agreement if needed.
- Ensure the buydown escrow is funded per lender instructions before closing.
- Review tax implications of points with a qualified tax advisor.
Final thoughts
When you use rate buydowns and credits with intention, you create flexibility without compromising your long-term plan. Whether you are buying in Far North Dallas or selling in Collin County, the right structure can widen your buyer pool and smooth out monthly payments. If you want a tailored model for your home and budget, connect with Christian Smith to map out a clean, compliant path forward.
FAQs
What is a 2-1 buydown on a mortgage?
- It is a temporary buydown where your rate is reduced by 2 percent in year one and 1 percent in year two, then returns to the note rate, with the subsidy funded at closing.
Do seller credits for buydowns count toward caps?
- Yes, most loan programs count both temporary and permanent buydowns toward seller contribution limits, which vary by program and LTV.
How will I be qualified if I use a buydown?
- Lenders generally qualify you at the full note rate, not the reduced temporary payment, to ensure long-term affordability.
How are buydown funds held and applied?
- The full subsidy is placed in a custodial escrow account at or before closing, and the servicer applies it each month to bridge the payment difference.
How much can a 2-1 buydown cost on $400,000?
- A common estimate is about 2 to 3 percent of the loan amount, and the example in this guide totals roughly $9,323.
Are seller-paid points tax-deductible for buyers?
- They can be, if IRS requirements are met, since seller-paid points are treated as if you paid them; a tax professional can confirm your eligibility.
