Which saves you more in North Andover: a seller credit at closing or a buydown that lowers your mortgage payment? When you are choosing between these deal structures, small details can change your monthly payment, your cash to close, and your long-term savings. You want a clear, local view before you write or accept an offer. In this guide, you will see how each option works, the tradeoffs for buyers and sellers, and simple examples using a price point common in Essex County. Let’s dive in.
Buydowns explained
A buydown means you pay, or a third party pays, to lower your mortgage rate. There are two common types.
- Permanent buydown. You or the seller pay discount points at closing to reduce your interest rate for the life of the loan. One point equals 1 percent of the loan amount. The rate drop per point varies by lender and market.
- Temporary buydown. A popular version is the 2-1 buydown. Your rate is 2 percent lower in year one and 1 percent lower in year two. A lump sum is set aside at closing and applied to your payments during the buydown period.
Both options are disclosed on your Closing Disclosure. With a permanent buydown, you get a lasting lower payment. With a temporary buydown, you get short-term relief and then your payment steps up to the note rate.
Seller credits explained
A seller credit is money the seller contributes toward your allowable closing costs and prepaid items. Credits can also be used to buy discount points or fund a temporary buydown, subject to loan program rules and caps. Credits reduce your cash to close. They do not change your monthly payment unless you direct them to points or a buydown.
Loan programs set limits on seller concessions, and those limits can change based on your down payment and loan type. Credits usually cannot be used for your minimum required down payment.
How the money moves at closing
- With a permanent buydown, points are paid at closing to the lender and appear on your Closing Disclosure.
- With a temporary buydown, the funding party deposits a lump sum that the lender or servicer holds and applies to your monthly payments for the buydown period.
- With a seller credit, the credit shows on the Closing Disclosure and is applied to your allowable costs or to points/buydown funding if permitted.
If a seller raises the price to cover a credit or buydown, the property must still appraise at the higher contract price. If it does not, you may need extra cash to close or to renegotiate.
Which option fits your North Andover goal
If you want short-term payment relief
Consider a 2-1 temporary buydown. It often costs less than buying the rate down permanently for the same first-year payment drop. This can be helpful if you are covering moving costs, are relocating, or expect income to rise.
If you plan to stay long term
A permanent buydown can make sense if you plan to hold the loan long enough to recover the upfront point cost. You trade cash today for lower payments every month for the life of the loan.
If your cash to close is tight
Ask for a seller credit. You can use it for closing costs and prepaid items, which reduces cash needed at closing. If program limits allow, you can direct part of the credit to discount points or a temporary buydown.
If you are selling a home
- In a softer market, offering a 2-1 buydown can attract more buyers without a large price cut. It focuses the incentive on monthly affordability during the first two years.
- In a competitive setting, many buyers prefer a clean offer. If you do offer a credit, keep documentation tight and check your lender’s caps early.
Real numbers on a North Andover price point
Below is an illustration using sample assumptions for a suburban Essex County purchase. Actual rates and pricing change often. Confirm with your lender before you write or accept an offer.
Assumptions:
- Purchase price: 625,000 dollars
- Down payment: 20 percent (loan amount 500,000 dollars)
- 30-year fixed, principal and interest only
- Note rate without buydown: 6.00 percent
- 2-1 buydown: Year 1 at 4.00 percent, Year 2 at 5.00 percent, then 6.00 percent
- Permanent buydown example: reduce from 6.00 percent to 5.00 percent
Estimated monthly principal and interest:
- No incentive at 6.00 percent: about 2,997.75 dollars
- 2-1 buydown Year 1 at 4.00 percent: about 2,387.10 dollars (save ~610.65 dollars per month vs. 6.00 percent)
- 2-1 buydown Year 2 at 5.00 percent: about 2,684.10 dollars (save ~313.65 dollars per month vs. 6.00 percent)
- Permanent buydown to 5.00 percent: about 2,684.10 dollars every month (save ~313.65 dollars per month, permanently)
Approximate cost to fund each option:
- Temporary 2-1 buydown: about 11,091.60 dollars total to cover two years of reduced payments
- Permanent 1.00 percent rate reduction: rule-of-thumb 4 points, or about 20,000 dollars on a 500,000-dollar loan
What that means:
- The temporary buydown costs less upfront and gives you the biggest first-year payment drop.
- The permanent buydown costs more but saves every month for as long as you keep the loan.
- Simple break-even for the permanent buydown at these figures is roughly 5.3 years to recoup the 20,000-dollar cost through monthly savings.
If a seller offers an 11,100-dollar credit instead, you can:
- Apply it to closing costs to reduce your cash to close while keeping the 6.00 percent rate.
- Apply part or all to discount points, subject to program caps, to reduce your rate permanently.
- Use it to fund a 2-1 buydown if the lender allows and documents it.
What underwriting looks at
- Many lenders qualify you at the note rate, not the reduced temporary rate. A 2-1 buydown may help your cash flow but not your qualifying power if this is the case.
- Seller concessions are capped based on loan program and loan-to-value ratio. Confirm limits for conventional, FHA, VA, or USDA with your lender.
- Temporary buydowns and seller-paid points must be documented and disclosed correctly. Your lender and closing attorney will coordinate the required forms.
Appraisal and pricing cautions
If you raise the purchase price to fund a credit or buydown, the appraised value must support the higher price. If the appraisal comes in short, you may need to bring extra cash, renegotiate, or adjust the concession. It is often cleaner to set a realistic price and structure a clearly defined credit that fits within program limits.
Offer strategy in Essex County
- In a hot, low-inventory moment, a clean offer with fewer concessions can be more attractive to a seller.
- In a slower patch, a temporary buydown can widen the pool of buyers by improving near-term affordability without a dramatic price cut.
- Coordinate with your lender before you submit. Ask for written confirmation on concession caps, how you will be qualified, and the exact cost to fund a 2-1 buydown or to purchase points.
Quick checklist to model your scenario
Use this to compare options before you commit in an offer.
- Gather your facts
- Loan amount, down payment, credit profile, debt-to-income, and how long you plan to own the home.
- Get live lender pricing
- Note rate, the cost per discount point, and the exact cost to fund a 2-1 buydown. Ask how you will be qualified.
- Confirm program caps
- Allowed seller concessions for your loan type and down payment.
- Run the numbers
- Monthly payment under each option. Lump-sum cost to the seller or to you. Break-even timing for permanent points.
- Check appraisal risk
- If pricing is adjusted to fund a concession, confirm likely appraisal range and your plan if the appraisal is short.
- Document the offer
- Spell out the credit amount and its use. If doing a temporary buydown, specify who funds it and confirm the lender addendum.
- Cover tax and legal
- Ask your tax advisor about the treatment of points. Confirm Massachusetts closing practices with your attorney.
How we guide North Andover clients
You get clear options and clean paperwork. We coordinate early with your lender, model side-by-side scenarios with your actual numbers, and structure the offer or listing terms to protect your goals. Whether you need short-term relief, long-term savings, or a smoother closing with less cash out of pocket, we help you pick the structure that delivers the result you want.
Ready to compare buydowns and credits for your North Andover move? Connect with Unknown Company to model your options side by side and Request Your Free Home Valuation.
FAQs
What is a 2-1 buydown and how does it work?
- A 2-1 buydown lowers your rate by 2 percent in year one and 1 percent in year two, funded by an upfront lump sum at closing that the lender applies to your payments; in year three, payments adjust to the note rate.
Can a seller fund my buydown or points in North Andover?
- Yes, a seller can contribute, but it counts as a seller concession and must follow loan program caps and lender rules; the credit must be documented on the Closing Disclosure.
Do temporary buydowns help me qualify for a mortgage?
- Often lenders qualify you at the full note rate, so a temporary buydown may not improve your qualifying ratios; ask your lender how they will calculate your debt-to-income.
Are discount points tax-deductible if the seller pays them?
- Points and their deductibility depend on IRS rules and who paid them; consult a tax professional to review your specific situation.
Will raising the price to cover a credit cause appraisal issues?
- If the appraised value does not support the higher contract price, you may need more cash or a renegotiation; consider a right-sized credit without inflating price to reduce that risk.
Which is better in a competitive North Andover market: credit or buydown?
- For clean offers, fewer concessions can help; in a slower market, a targeted 2-1 buydown can improve buyer affordability without a large price cut; coordinate the choice with your lender and agent.
