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Michael Creed

Branch Manager

NMLS 50441

(262) 293-5144

mcreed@envoymortgage.com

CloseWithMichael.com/GetStarted

Seller Paid Buydown
How Smart buyers and sellers can turn paying more into paying less
Loan Payment without a Rate Buydown
Purchase Price
Down Payment =   -
Loan Amount =
Monthly Loan Payment Monthly
Rate, Term and Payment
for years =
Loan Payment with a Seller Paid Rate Buydown
For this option - the buyer pays a little more for the house and the seller then uses that extra to pay for "discount points" on behalf of the purchaser to "buy down" or lower their interest rate.
Seller's Closing Cost Credit to Pay for Buydown of
New Sales Price to Cover Buydown Credit
Cash Paid by Seller for Rate Buydown =
Net Sales Price to Seller
Down Payment = -
Down Payment difference vs. no buydown =
Loan Amount =
Approximate Rate Reduction
Approximate New Interest Rate with Buydown =
Monthly Loan Payment with Rate Reduction - enter new rate shown or adjust for actual available options Monthly
Rate, Term and Payment
for years =
Results
Payment without Buydown
-
Payment with Buydown
=
Monthly Savings
Despite the higher sales price and loan amount, the lower rate = a lower monthly payment
Total payment Comparison
Select Year to analyze total payment difference and savings
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0 30
Payment without Buydown
-
Payment with Buydown
=
Monthly Savings
What becomes clear here is that even though the "price" of the home is higher, the "cost" is actually lower.
Principal Paid Comparison
Select Year to analyze total principal paid difference
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0 30
Total Principal Paid w/o Buydown
-
Total Principal Paid w/Buydown
=
Extra Principal Paid
Despite the lower payment with a rate buydown, there is more paid towards principal every month
Interest Paid Comparison
Select Year to analyze total interest paid difference
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0 30
Total Interest Paid w/o Buydown
-
Total Interest Paid w/Buydown
=
Interest Saved with Buydown
Here again, despite a higher loan amount, the lower rate can still significantly lower your real cost of owning
Loan Balance Comparison
Select Year to analyze loan balance difference
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0 30
Loan Balance without Buydown
-
Loan Balance with Buydown
=
Difference in Loan Balances
Your loan balance with a seller paid buydown will be higher in the early years, lower through the life of the loan then ultimately, any fully amortizing loan will end up at zero after the full term of the loan
Purchaser's Tax Benefit
Purchaser's Marginal Tax Bracket =
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0 60%
Cost of Points Paid by Seller
=
Value of Buyer's Tax Deduction =
Extra Down Payment Made
=
Tax Deduction Exceeds Extra D.P. by
The value of this tax deduction is often more than the added amount of the buyer's down payment
The Net Benefit of a Seller Paid Buydown
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0 10%
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0 15%
Buydown Paid Interest Rate
Use the sliders here to adjust the buydown amount and interest rate to see how it impacts the total benefit
The net benefit is calculated by adding together the interest savings, the loan balance differential and the tax benefit on points paid. The point at which the graph crosses zero is where this approach becomes beneficial. This is the point at which the interest savings, tax benefit and extra principal paid more than compensates for the intially higher loan balance.
Additional Benefits
Less income is required to qualify
Conventional thinking is to pay less to save money. See the chart below to see how a buydown can be even better:
  At Asking Price w/4% Reduction w/4% Buydown
Sales Price
Down Payment @ 20%
Loan Amount
Interest Rate
Principal & Interest
Monthly R.E. Taxes
Monthly Insurance
Total Monthly Payment
Monthly Savings  
Annual Income to Qualify
The Seller Paid Buydown can also be used to qualify for more home:
Using the buydown rate from above, the monthly cost of each $1,000 of loan amount equals
This means the savings from the lower rate could qualify you for an additional loan amount of
Seller nets the same amount from either scenario and if they have a capital gains tax liabiliy, the cost of the points paid on behalf of the borrower can be added to their cost basis for the property to reduce the amount of their tax.

The neighborhood benefits as the sale price is higher than it would have been otherwise - this provides for a better "comp" for successive sales and allows a seller to make their home more affordable without reducing the price.
Overall, the seller paid buydown is a smart strategy where everyone truly wins!


This is not a commitment to lend. Envoy Mortgage Ltd. - NMLS # 6666

The information contained in these calculators and reports are illustrations for informational purposes. The use, presentation or receipt of this information does not constitute an offer to lend, an application nor a Good Faith Estimate pursuant to the Real Estate Settlement Procedures Act, or estimate of fees. Where included, interest rates are subject to change at any time and are not intended to be viewed as the current market rate. Annual Percentage Rates (APR's) can also vary at any time, and are presented as approximations that are generally calculated conservatively and may be higher than the actual current market APR which will be determined and disclosed upon request of a formal Good Faith Estimate or upon application for financing. Every effort has been made to assure the accuracy of the information and mathematical calculations, however, the provider, makes no guarantee and maintains no liability for use of or reliance upon the results. Formulation of a scenario using these tools does not mean that the results are guaranteed. All loan products have guidelines and those rules or tolerances will vary based upon many factors including but not limited to loan to value ratios, income, employment history, debts, assets, creditworthiness and underwriter's review and approval. This is not a lock-in agreement or a commitment to lend.

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