Staring at today’s rates and trying to decide if you should push for a price cut or a rate buydown? You are not alone. In North DFW, many buyers and sellers are weighing the same choice to make monthly payments manageable and deals come together.
This guide breaks down how temporary buydowns, permanent buydowns, and price reductions really work in Dallas County. You will see side‑by‑side examples, what fits different goals, and how to model the numbers with your lender. Let’s dive in.
How buydowns and price cuts work
Temporary buydown basics
A temporary buydown lowers the borrower’s interest rate for the first years of the loan. Common versions are 2-1 and 3-2-1.
- 2-1 buydown: rate is 2% lower in year 1 and 1% lower in year 2, then returns to the note rate.
- 3-2-1 buydown: 3% lower in year 1, 2% lower in year 2, 1% lower in year 3, then returns to the note rate.
A third party, often the seller, funds an interest reserve at closing. That reserve covers the difference between the reduced payment and the full note-rate payment during the buydown period. Lenders typically still qualify you at the full note rate, not the reduced temporary rate, so confirm underwriting with your lender.
Permanent buydown (points)
With a permanent buydown, someone pays discount points at closing to secure a lower note rate for the life of the loan. One point usually equals 1% of the loan amount, and a rough rule of thumb is that each point may lower the rate by about 0.25% depending on the market and lender. If the points are allowed and documented, lenders generally qualify you at the lower rate. Always confirm current pricing and guidelines.
Price reduction
A price reduction lowers the contract price, which reduces the loan amount if your down payment percent stays the same. This cuts your monthly principal and interest, but your interest rate stays the same. A price cut can help with appraisal alignment because it changes the headline contract price.
What saves you more in Dallas County?
The best way to judge your options is to look at real numbers. The simple examples below use the same assumptions to keep the comparison fair: $400,000 purchase price, 20% down, $320,000 loan, 30‑year fixed, and a 7.00% note rate.
Baseline payment at 7.00%
- Monthly principal and interest at 7.00% is about $2,129.
2-1 temporary buydown
- Year 1 at 5.00%: about $1,718 per month.
- Year 2 at 6.00%: about $1,919 per month.
- Years 3 and beyond at 7.00%: about $2,129 per month.
- Seller cost to fund the buydown reserve: roughly $7,452.
- Buyer savings: about $411 per month in year 1 and $210 per month in year 2.
What this means: For about $7,452 of seller funds, the buyer gets strong monthly relief up front. This can expand the buyer pool in a rate‑sensitive market.
Permanent buydown to 6.00%
- Roughly 4 points could lower 7.00% to 6.00%, which on a $320,000 loan is about $12,800.
- Monthly payment at 6.00%: about $1,919.
- Monthly savings vs 7.00%: about $210.
- Break‑even: $12,800 divided by $210 is around 61 months, or just over 5 years.
What this means: A permanent buydown costs more upfront than a 2-1, but it lowers the payment for the full life of the loan. It is more attractive if the buyer expects to keep the mortgage for years.
Price reduction using the same $7,452
- Instead of a 2-1 reserve, use $7,452 as a price cut.
- With 20% down, the loan amount would drop by about $5,962.
- New loan: about $314,038 at 7.00%.
- New monthly payment: about $2,089.
- Monthly savings vs baseline: about $40, permanently.
What this means: A price cut delivers a smaller monthly change per dollar spent compared with a temporary buydown, but it is permanent and lowers the buyer’s basis.
Which option fits your goal?
If you need lower monthly now
Choose a temporary 2-1 or 3-2-1 buydown. You get the largest near‑term payment reduction per dollar spent. This is helpful if you are managing first‑year cash flow, want to ease into the payment, or need better payment optics to move forward. Remember, most lenders still qualify you at the full note rate.
If you expect to stay 5 years or more
Consider a permanent buydown if you or the seller can invest more upfront. The ongoing monthly savings can outweigh the cost after the break‑even period. If you plan to hold the mortgage beyond that point, the net benefit grows over time.
If appraisal or simplicity is the focus
Look at a price reduction. Lowering the contract price can help with appraisal alignment and keeps concessions simple. It reduces the loan amount and monthly principal and interest permanently. The per‑dollar impact on monthly payment is smaller than a buydown, but it is straightforward and permanent.
Practical Dallas County considerations
- Market tempo: In rate‑sensitive segments of North DFW, seller‑funded buydowns can attract more buyers by making the payment look better in the first years. In hotter submarkets with multiple offers, buyers sometimes favor a price reduction to strengthen appraised value.
- Neighborhood variation: Higher‑priced areas may see more permanent buydowns and builder credits. Entry‑level areas often use 2-1 buydowns to widen the qualified buyer pool.
- Appraisal: A price cut changes the contract price, which can help appraisals. A buydown does not change the price or appraised value.
- Other costs: Buydowns affect only principal and interest. Property taxes, insurance, HOA dues, and PMI are not reduced by a temporary buydown. A lower loan amount from a price cut can help with PMI in some cases, but that depends on the loan program and down payment.
Know the program rules and limits
- Seller concessions: Conventional loans often cap seller concessions around 3% of the sales price with less than 10% down, 6% with 10% to 25% down, and 9% with at least 25% down. FHA typically allows up to 6%. VA rules are different. Temporary buydowns and points usually count toward these caps. Check the buyer’s exact loan program.
- Underwriting: Many lenders underwrite temporary buydowns at the full note rate. Permanent buydowns, when documented and allowed, are often underwritten at the lower rate. Always confirm with the lender.
- Taxes and disclosures: Seller‑funded buydowns appear as concessions on closing documents. The deductibility of points depends on IRS rules and your situation. Consult a tax advisor.
How to compare options with your lender
Use a simple side‑by‑side with your agent and lender so you can see the tradeoffs clearly.
- Gather loan and program details
- Loan type, term, estimated note rate, down payment percent, and credit profile.
- Ask the lender for three numbers
- Monthly payment at the note rate with no buydown.
- The year‑by‑year payment and total dollars needed to fund a temporary buydown.
- The cost in discount points to reach specific lower permanent rates, plus the amortization reflecting those rates.
- Compare seller proceeds and buyer cash to close
- Net to seller after funding a buydown vs after a price cut of the same amount.
- Buyer cash to close under each scenario.
- Review qualifying and total payment
- Which rate the lender will use to underwrite the loan.
- Full monthly housing cost in each scenario, including taxes, insurance, HOA, and PMI if applicable.
- Check the break‑even
- For permanent buydowns, months until monthly savings recoup the upfront cost.
- For temporary buydowns, total first‑year and second‑year relief compared with the upfront funding.
A clear way to decide
- If your top priority is immediate affordability and creating urgency for buyers, a 2-1 or 3-2-1 buydown is a strong tool. It keeps the headline price intact while delivering real payment relief.
- If you plan a longer hold and can invest more upfront, a permanent buydown can be attractive after the break‑even period.
- If you need appraisal alignment or want the simplest path, a targeted price reduction is clean and permanent.
Whichever path you choose, run the numbers with a local lender and compare apples to apples. A few minutes of modeling can unlock the best outcome for your situation.
Ready to see this for your home or offer in North DFW? Reach out to the team at Darna Real Estate Group. We will help you compare scenarios, coordinate with your lender, and negotiate the structure that fits your goals.
FAQs
What is a 2-1 buydown and how does it affect payments?
- A 2-1 lowers your rate by 2% in year 1 and 1% in year 2, then it returns to the note rate, delivering the largest monthly relief in the first year for a relatively modest upfront cost.
Do temporary buydowns help me qualify for a mortgage in Dallas County?
- Often no, since many lenders underwrite at the full note rate, not the reduced temporary rate, so confirm your lender’s policy early.
When is a permanent buydown worth it for North DFW buyers?
- It tends to pay off if you expect to keep the mortgage beyond the break‑even period, which in the example above is a little over five years.
Is a price reduction better for appraisals in North DFW?
- It can be, because a price cut lowers the contract price that the appraiser considers, while a buydown does not change the price.
Do seller concessions limit how big a buydown can be?
- Yes, conventional loans often cap concessions at about 3% to 9% depending on down payment, FHA typically at 6%, and VA has its own rules.
Do buydowns lower taxes, insurance, or HOA dues?
- No, temporary buydowns reduce only principal and interest; taxes, insurance, HOA, and PMI are unchanged unless a lower price changes your loan terms.
