Can a Seller Fund a Rate Buydown on a Bay Area Home

By Laxmi Penupothula, REALTOR® · Intero Real Estate Services · CA DRE #02047105

A seller-funded temporary buydown can help cover part of a buyer’s mortgage payments for an initial period. It is one possible term to discuss when a buyer is concerned about early payments. It does not establish that the home is worth the asking price or that the buyer qualifies for financing.

Understand the temporary payment help

A temporary buydown uses funds set aside to lower the buyer’s payment for an initial period. The mortgage note keeps its permanent terms, so the buyer’s payment rises as the assistance ends. The lender should supply the payment schedule, funding amount and written terms. See the Fannie Mae temporary buydown rules.

A temporary subsidy is not a permanently lower mortgage rate. Ask the buyer’s loan officer to explain the difference between a temporary buydown and paying discount points for a permanent rate reduction.

It does not replace qualification

For a Fannie Mae loan with a temporary buydown, the borrower qualifies at the note rate, not the reduced payment. The program also has restrictions. Fannie Mae allows temporary buydowns on principal residences and second homes, but not on investment properties or cash-out refinances, and it limits the size and length of the rate reduction.

Fannie Mae rules apply only to loans that follow its guidelines. A high-value Bay Area purchase may use jumbo financing or another program with different requirements, so confirm the actual loan program rather than assuming a familiar buydown is available.

Compare the seller’s cost

Before agreeing, ask for two net sheets: one using the proposed price and buydown funding, and another using the alternative price or credit under discussion. Include the rest of the offer terms. A larger headline price can be offset by the incentive you fund. For a simple price-versus-credit comparison, see seller concessions vs price cuts.

Also ask what happens if the buyer seeks a different loan, the appraisal is lower than expected or the closing date changes. Put the agreed terms in the transaction documents with your broker’s guidance.

Questions to settle before accepting

• Does this buyer’s lender permit the proposed plan?
• What exact amount will the seller fund?
• Has the lender counted it correctly with other contributions?
• What will the buyer owe when assistance ends?
• How do the final net proceeds compare with other offers?

Under Fannie Mae guidance, a buydown funded by an interested party, such as the seller, counts toward the same contribution limits as other seller credits. Ask the lender to confirm the combined credits, not just the buydown on its own. See the Fannie Mae contribution guidance.

I help sellers compare the cost and terms of offers. The buyer’s lender determines loan eligibility and provides mortgage disclosures. A buydown is a transaction choice to evaluate, not a promise of a sale or a substitute for sound pricing.

Compare your selling options

Compare your selling options before you decide. Share your property address and timeline so we can discuss pricing, preparation and offer terms for your home.

Laxmi Penupothula, REALTOR® · Intero Real Estate Services · CA DRE #02047105 · 510-493-1955

Sources

• Fannie Mae Selling Guide B2-1.4-04, Temporary Interest Rate Buydowns
• Fannie Mae Selling Guide B3-4.1-02, Interested Party Contributions

General educational information, not legal, tax or lending advice. Terms, eligibility and outcomes depend on the property and transaction. Confirm transaction-specific questions with your broker, lender, escrow officer or attorney.