Seller Concessions and Rate Buydowns in Seattle: How Buyers and Sellers Can Use Them

What are seller concessions and rate buydowns in Seattle? In Seattle, a seller concession is a credit toward the buyer’s closing or loan costs, and a rate buydown uses that money to lower the buyer’s interest rate. Lenders cap how much a seller can contribute.

Price is only one number in an offer. Two offers at the same price can leave the seller with different amounts and the buyer with very different monthly payments, depending on the credits and rate terms attached.

Here is how concessions and buydowns work on a resale home, what lenders allow, how to compare a credit against a price cut, and what each side should ask before agreeing. I’ll use hypothetical numbers so you can see the math, and I’ll leave out today’s rates because they change every week.

The terms, in plain English

A few words get mixed together in offers, so it helps to separate them.

• Seller concession (or seller credit). The seller agrees to pay part of the buyer’s costs at closing. It is a credit at the closing table, not cash handed to the buyer. Lenders call this kind of help an interested party contribution.
• Discount points (a permanent buydown). The buyer pays upfront to lower the interest rate for the life of the loan. The CFPB explains that one point equals 1% of the loan amount, so on a $100,000 loan, one point costs $1,000, and that you pay more up front in exchange for a lower rate and less interest over time.
• Temporary buydown. Money is set aside to lower the buyer’s payment for the first year or two, and then the rate returns to the note rate. Fannie Mae allows these on fixed-rate loans and certain adjustable-rate loans for principal residences and second homes, with the rate reduction capped at 3%. A “2-1” buydown, for example, lowers the rate by two percentage points in year one and one percentage point in year two.
• Lender credit. A different thing: the lender gives a credit toward closing costs in exchange for a higher rate. The CFPB notes that with lender credits you pay less up front, but you pay more over time.

The seller can pay for the first three, and the lender provides the last one. Discount points are usually paid by the buyer, but a seller credit can cover them. Keep them straight, because a seller credit does not change the interest rate unless the buyer uses it to buy points or a buydown.

Credit or price cut: the math

When a buyer asks for help, the seller can often meet them in one of two ways: lower the price or give a credit. They are not the same.

A hypothetical example

Hypothetical, for illustration only: say a buyer takes a $640,000 loan, 30-year fixed, at 6.5%. The principal-and-interest payment is about $4,045 a month. Here are three ways a seller’s $6,400 could be used. The rate drop from a point depends on the lender and the day, so I’m assuming one point lowers the rate by a quarter point.

Use of $6,400	What changes	Monthly principal and interest	Monthly savings
Price cut	Loan drops to $633,600	about $4,005	about $40
One discount point	Rate drops to 6.25%	about $3,941	about $105
Closing cost credit	Buyer needs less cash at closing	about $4,045	$0 on the payment

In this example, the point saves about $105 a month. Measured against simply keeping the $6,400, it pays for itself in about 61 months, or roughly five years. Measured against the price cut, which also removes $6,400 from the loan balance right away, the point does not come out ahead until about year five and a half. A buyer who sells or refinances sooner is usually better off with the price cut.

On this loan, the credit does not change the monthly payment. It reduces the cash the buyer needs at closing, which helps a buyer who is short on cash but has room in the monthly budget.

So the best use depends on the buyer. A buyer who plans to keep the loan well past five years and is stretched on the monthly payment may prefer points. A buyer who is stretched on cash may prefer a credit. A buyer who expects to sell or refinance sooner may prefer a price cut.

What a temporary buydown looks like

Using the same hypothetical loan, a 2-1 buydown starting from 6.5% would put the rate at 4.5% in year one and 5.5% in year two. The payment would be about $3,243 in the first year and about $3,634 in the second, compared with $4,045 at the note rate. That is roughly $9,600 in savings across year one and $4,900 across year two, so someone, often the seller, would need to fund about $14,600 into a buydown account.

Two cautions for buyers. First, for a conventional loan sold to Fannie Mae, the guide says that when underwriting a loan with a temporary buydown, the lender must qualify the borrower at the note rate without consideration of the bought-down rate. The buydown does not help you qualify. Second, the payment rises after the buydown ends, so plan for the full payment, not the first-year payment.

What lenders allow

Seller credits have limits, and the limits depend on your loan.

• Conventional loans backed by Fannie Mae. The guide sets maximums for a principal residence or second home based on loan-to-value: 3% when the LTV is above 90%, 6% when it is between 75.01% and 90%, and 9% when it is 75% or less. For an investment property the limit is 2%. The percentages are calculated using the lower of the sales price or the appraised value.
• Actual costs only. The same section says the financing concessions must be equal to or less than the buyer’s closing costs. Any credit above the buyer’s actual costs generally cannot be used, because the lender will not pay it out to the buyer.
• Buydowns count. When an interested party pays for a rate buydown, Fannie Mae says the cost of that subsidy must be included in the contribution limit calculation.
• VA loans. The VA limits seller concessions to no more than 4% of the home’s reasonable value. It describes concessions as anything of value added to the transaction at no additional cost to the buyer, and normal closing costs are counted separately, so ask the buyer’s VA lender how the 4% is counted.
• FHA and other loans. FHA, USDA, jumbo, and other programs have their own rules. Ask the buyer’s lender for the cap before you write the offer.

Two practical points follow. The cap is a percentage of the price or value, so a low appraisal can shrink the room for a credit. And the credit has to be written into the purchase agreement and disclosed to the lender. Your agent handles the forms, and the lender confirms the cap before closing.

If you are a buyer

Here is how I would approach a concession as a buyer in the Seattle area.

1. Decide what problem you are solving. Is it cash at closing, the monthly payment, or both? A credit helps with cash. Points and temporary buydowns help with the payment.
2. Get the lender’s numbers first. Ask for a quote with and without points, with the same assumptions, so you can compare. The CFPB advises asking for the same amount of points or credits from each lender when you compare quotes.
3. Find your break-even. Divide the cost of the points by the monthly savings. If you may move or refinance before that point, skip the points.
4. Ask in the offer, not after the inspection. A credit that is built into the offer terms is easier for a seller to weigh than one requested later. My article on negotiating strategies for Seattle buyers covers how to structure an ask.
5. Check the cap. If the credit you want exceeds your loan’s limit, the extra cannot be used. Your lender can tell you before you offer.

The trade-off to understand is that asking for a credit can mean a higher price or a weaker offer in a multiple-offer situation, because the seller compares the net they would receive. The more competition there is for a home, the less likely a seller is to agree.

To see how I approach a purchase before you write an offer, watch my free home buyer webinar replay.

If you are a seller

Sellers should compare offers by what they would take home, not by the headline price.

1. Start with your net. Subtract the credit, the cost of any buydown, and the usual selling costs from the price. My article on what it costs to sell a house in Seattle lists the pieces so you can build your own number.
2. Compare the terms, not just the amounts. Two offers can have the same net with different risks. A higher price with a bigger credit relies on the appraisal supporting the higher price. A lower price with no credit is simpler.
3. Think about the appraisal. A credit does not fix an appraisal that comes in below the price. If the price is too high for the comparable sales, the credit will not cover the gap. Price from the sales your appraiser will use.
4. Consider offering help up front. In some cases a seller prefers to offer help with closing costs or a rate buydown instead of lowering the price, which keeps the recorded price higher. Appraisers may adjust for concessions when they use the sale as a comparable, so it works best when the home is priced in line with comparable sales.
5. Know your limits. Ask the buyer’s agent which loan the buyer is using, so you know the cap before you agree to a number.

I cover how to read and compare offers in my article on listing agent strategies to maximize offers.

A caution on fairness: judge offers on their terms, such as price, credits, financing, timing, and contingencies, and never on who the buyer is. I compare offers that way.

If you want to see your own net on a few scenarios, my free seller report and consultation puts price, credits, and costs side by side.

How to write it into the offer

Whether you are buying in Seattle, Shoreline, Bothell, or Lynnwood, the mechanics are the same. State the credit as a dollar amount or a clear percentage, say what it may be used for (closing costs, points, or a buydown), and make sure the amount stays within the lender’s cap. If the buyer will use it for a temporary buydown, say so in the offer, because the funds are placed in a separate account and the lender needs the details. Fannie Mae’s guide says buydown accounts must be established and fully funded by the time the lender submits the mortgage to Fannie Mae, which means the paperwork has to line up before closing. Your agent fills in the agreement, and the lender confirms the cap and the account before you sign off.

Mistakes to avoid on both sides

• Comparing headline prices only. A $10,000 higher price with a $15,000 credit nets the seller about $5,000 less than the lower price with no credit, before commission and excise tax on the higher price. If the lender caps the credit, the buyer may have to renegotiate.
• Treating a temporary buydown as a lower rate. It is a payment break for a set time. The note rate is what you carry afterward.
• Buying points you will not keep long enough. If you may refinance or sell before the break-even, the points cost more than they save.
• Asking for a credit larger than the closing costs. The lender will not pay out a credit larger than the buyer’s real costs, so match the credit to actual costs.
• Ignoring the appraisal. A bigger credit with a higher price only works if the home appraises. Price from the comparable sales.
• Waiting until the end to ask. Raising the credit after inspections is harder than writing it into the original terms.
• Skipping the lender conversation. Each loan program has its own cap. A call before you write the offer prevents an offer that cannot close as written.

When concessions help, and when they do not

Concessions are a tool, not a goal. They tend to help when a buyer is cash-limited but can carry the payment, when a home needs a push to stand out, or when a seller prefers to keep the recorded price higher. They tend to help less when the home is priced above the comparable sales, because a credit cannot fix the price. They also help less when the buyer’s loan limit is low and the credit would exceed the cap.

New construction is a separate topic. Builders often fund rate buydowns through their own lenders, with different rules and trade-offs. This article is about resale homes.

Frequently Asked Questions

What is a seller concession?

A seller concession is an agreement that the seller will pay part of the buyer’s closing costs, loan costs, or a rate buydown. It appears as a credit at closing. Lenders limit how much a seller can contribute, based on the loan type and the loan-to-value ratio.

How much can a seller contribute?

It depends on the loan. For a conventional loan backed by Fannie Mae on a principal residence, the limit is 3%, 6%, or 9% of the price or value depending on the down payment. VA loans have a separate 4% limit on seller concessions, counted differently from normal closing costs. Ask the buyer’s lender for the exact cap before you agree to a number.

Is it better to ask for a price cut or a seller credit?

It depends on what the buyer needs. A credit helps with cash at closing but does not lower the payment. A price cut lowers the loan slightly and the payment a little. Points can lower the payment more, but they only pay off if the buyer keeps the loan long enough to reach the break-even.

Does a temporary buydown help me qualify for a bigger loan?

For a conventional loan sold to Fannie Mae, no. The guide says the lender must qualify the borrower at the note rate, without considering the bought-down rate. A temporary buydown lowers early payments but does not increase the amount you can qualify for.

Can a seller credit fix a low appraisal?

No. A credit does not change what the home appraises for. If the appraisal comes in below the price, the buyer, the seller, or both still have to deal with the gap. The cap on credits is also calculated from the lower of the price or the appraised value, so a low appraisal can reduce the credit allowed.

Compare your options before you write the offer

If you are buying, the right mix of price, credit, and rate depends on your cash, your budget, and how long you plan to keep the loan. If you are selling, the right response depends on your net and your risk. Start with my guide to making a competitive offer in Seattle on HomeProAssociates.com, or call or text Emily Cressey at 206-245-8813. This article is general information, not lending, tax, or legal advice, so confirm your specifics with your lender before you act.