A rate buydown is not a product the lender gives away. It is a cost, paid in cash at closing, by a specific party. The question of which party matters more than most people in a transaction realize, because the answer changes the documentation, the contribution cap, and occasionally whether the structure is permitted at all.
The seller
The most common source on a resale transaction, and the one this market runs on.
Funds come out of seller proceeds as an interested party contribution. Mechanically it is identical to a closing cost credit: it appears on the settlement statement, it reduces the seller's net, and it counts against the buyer's concession cap.
What a listing agent should know:
- It has to be in the purchase contract, or in an addendum, with the dollar amount or the structure specified.
- It competes with every other seller-paid item under one limit.
- The seller's net is reduced by the full amount, which is why the comparison against a price reduction of the same size is the right comparison to run. See Seller Concession vs Price Reduction.
The builder
Standard practice on new construction, and usually routed through an affiliated lender. The builder holds the price, funds the financing incentive, and advertises the rate.
The catch for the buyer is that the incentive is typically conditioned on using the builder's lender, which means the buyer never gets to test whether the overall deal is competitive. See Builder's Lender or Your Own and Why Builders Advertise Rates.
The buyer
A buyer can fund their own buydown with their own cash. It is permitted and it is occasionally the right move, but a buyer with cash to allocate should run the comparison before committing it here.
The same dollars could go to:
- A permanent rate reduction, which lowers the rate for the full term rather than the first years. Usually the better use for a long hold. See Permanent vs Temporary.
- A larger down payment, which lowers the balance, may improve pricing tier, and on conventional financing may reduce or eliminate mortgage insurance.
- Reserves, which on a jumbo or non-QM file can be the difference between approved and declined.
A buyer who spends their last liquid dollars on a temporary buydown and then fails the reserve test has optimized the wrong variable. That happens, and it is preventable.
The lender
Lender credits exist and can be applied toward buydown costs in some structures, generally funded by accepting a higher note rate. Which is worth thinking about for a second: a lender credit funded by a higher note rate, applied to temporarily buy the rate down, is a circle. Sometimes it is a useful circle, because it converts a long term cost into short term cash flow relief. Frequently it is not.
Ask for the comparison without the credit and with it, side by side.
The real estate agent
Agents can contribute toward a buyer's costs in some circumstances, commonly by crediting a portion of their commission. The rules governing this are real and they vary: by program, by state licensing requirements, and by the agent's own brokerage policy, which is frequently the binding constraint.
If you are an agent considering it, confirm three things before you offer it: that the buyer's loan program permits it, that Arizona licensing requirements are satisfied, and that your broker approves. That last one stops more of these than the first two.
How a buydown gets documented
Regardless of who funds it, expect:
A buydown agreement. A separate document signed at closing stating the structure, the subsidized rates year by year, the escrow amount, and what happens to unused funds.
The settlement statement. The funding party's contribution shown as a line item, which is what the underwriter checks against the contribution cap.
The escrow account. The lump sum is deposited and administered by the servicer, which disburses the subsidy monthly.
Disclosure to the buyer. The buyer receives the payment schedule including the step up and the final payment. Anyone who reaches closing surprised by year three was not reading, but the disclosure exists.
Where files go wrong
The contract says "seller to pay closing costs" with no mention of a buydown. The lender structures what the contract authorizes. Vague language produces a closing cost credit, not the structure somebody intended.
The total exceeds the cap and underwriting reduces it. See the cap post above.
The program does not allow it for that occupancy or property type. Confirm early.
Two parties each think the other is funding it. Put it in writing with a dollar amount.
Nobody told the buyer about year three. Fixable in one sentence, and worth saying early. See What Happens When the Buydown Ends.
The short version
Somebody writes a check. Decide who, write it into the contract with a number, confirm it fits the cap, and confirm the program permits it. Do that before the contract is executed and the structure holds together through closing.
Why bring this to us
- We run the numbers before the listing goes live, so the figure in your marketing is a real locked rate rather than a hope.
- Broker model. Multiple investors, which matters when one lender's buydown terms do not fit the file.
- We will sit in the listing appointment with you and explain the structure to the seller directly.
- You talk to the principal. Ricky Khamis is President of EPiQ Lending, NMLS #173141, lending in Arizona since 1999 and a 2025 Presidents Club Winner at CMG Home Loans. Direct line: (480) 999-9842.
EPiQ Lending is NMLS #1936984, at 7975 N. Hayden Road, Suite A-101 in Scottsdale. Verify all of it before you trust any of it: Ricky's EPiQ Lending profile, the Scottsdale branch, and the license itself at NMLS Consumer Access. Hold every lender to that standard, including us.
Send me the address and the price before the next reduction, and I will show you what a concession pointed at the payment does instead.
Equal Housing Opportunity. This is general information, not a commitment to lend or an offer to extend credit. Buydown structures and any figures shown are illustrative, derived from a structure applied to an assumed note rate, and are not an offer or a quote. Actual rates depend on credit approval, loan program, occupancy, loan amount, down payment, property type and market pricing at lock. Seller contribution limits vary by loan type, occupancy and loan-to-value and change over time; confirm current limits against the buyer's specific loan. Rates, terms and program guidelines change and depend on credit approval, property appraisal and other qualifying factors. Not all applicants will qualify.
Looking at a specific home? Send me the address and I will run the numbers: rickykhamis.com/analyze
