Deciding whether to ask for a rate buydown or a price cut on a Land Park home can feel tricky. You want the best mix of monthly affordability and long-term value, and the market here moves fast. This guide breaks down how each option works, what it costs, and how it impacts your payment and equity using a clear Land Park example. Let’s dive in.
What each option means
2-1 temporary rate buydown
A 2-1 buydown lowers your interest rate by 2% in year one and 1% in year two, then it returns to the full note rate in year three. The lower early payments are funded up front through a subsidy, often paid by the seller as a concession. You get strong short-term payment relief, but your long-term rate and loan balance do not change.
Permanent rate buydown (discount points)
A permanent buydown uses discount points paid at closing to reduce your interest rate for the entire loan term. One point equals 1% of the loan amount. The rate reduction per point varies by lender and market conditions. You lock in a lower monthly payment and reduce total interest over time, but your immediate equity does not increase.
Price reduction
A price reduction lowers the contract price and, with it, your loan amount. Your monthly payment drops permanently and your equity increases immediately by the amount of the reduction. The interest rate stays the same.
Buyer and seller trade-offs in Land Park
- Monthly cash flow vs equity:
- 2-1 buydown gives the biggest near-term payment relief, with no equity change.
- Permanent buydown gives steady monthly savings for the life of the loan, with no immediate equity boost.
- Price reduction gives instant equity and a smaller permanent monthly savings.
- Seller cash outlay vs buyer benefit:
- Sellers can spend similar dollars as a price cut or a buydown, but your benefit profile changes. Temporary buydowns help now, permanent buydowns help every month, and price cuts build equity on day one.
- Appraisal and underwriting:
- A price reduction changes the contract price and impacts appraisal comparables. Seller-paid buydowns show as credits and must be allowable under the loan program.
- Taxes and deductibility:
- Discount points may be deductible as prepaid interest in some cases. Tax treatment varies. Consult a tax advisor.
- Market dynamics:
- In a stronger seller’s market, concessions are less common. When conditions cool, buydowns and price cuts become effective negotiating tools.
A simple Land Park example (illustrative)
Below is a transparent example to show how the math works. These figures use round numbers for a typical Land Park price point. Confirm actual rates, points, and loan program rules with your lender.
- Purchase price: $1,000,000
- Down payment: 20% ($200,000)
- Loan amount: $800,000
- Loan term: 30-year fixed
- Contract interest rate: 7.00% (illustrative)
- Payment factors used for principal and interest only:
- 7.00% → $6.653 per $1,000
- 6.50% → $6.321 per $1,000
- 6.00% → $5.996 per $1,000
- 5.00% → $5.368 per $1,000
Baseline monthly P&I at 7.00%: 800 × 6.653 ≈ $5,322
Option details using the example
2-1 temporary buydown (seller funds subsidy)
- Year 1 at 5.00%: ≈ $4,295 P&I
- Year 2 at 6.00%: ≈ $4,796 P&I
- Year 3+ at 7.00%: ≈ $5,322 P&I
- Monthly savings vs baseline: Year 1 ≈ $1,028, Year 2 ≈ $526
- Approximate up-front subsidy required: ≈ $18,646
Permanent buydown example (0.50% reduction to 6.50%, cost ≈ 2 points)
- Points cost: 2% of $800,000 = $16,000
- New monthly P&I at 6.50%: 800 × 6.321 ≈ $5,057
- Monthly savings vs baseline: ≈ $266
Price reduction equal to $16,000
- New loan: $784,000
- Monthly P&I at 7.00%: 784 × 6.653 ≈ $5,215
- Monthly savings vs baseline: ≈ $107
- Immediate equity increase: $16,000
Side-by-side comparison (illustrative)
| Option | Seller cash today | Buyer saving Year 1 | Buyer saving Year 2 | Long-term saving (monthly) | Immediate equity |
|---|---|---|---|---|---|
| 2-1 buydown | $18,646 | $1,028 | $526 | $0 | $0 |
| Permanent buydown (0.50%) | $16,000 | $266 | $266 | $266 | $0 |
| Price reduction | $16,000 | $107 | $107 | $107 | $16,000 |
What this shows:
- A 2-1 buydown delivers the largest short-term relief, helpful if you want breathing room now or plan to refinance later.
- A permanent buydown creates larger ongoing savings than a same-dollar price cut in this example, because the lower rate applies for the life of the loan.
- A price reduction boosts your equity immediately and still lowers your monthly cost, which can help with appraisal positioning.
Which option fits your goal
- Choose a 2-1 buydown if you value short-term affordability, need help qualifying, or expect to refinance in the next 1 to 3 years.
- Choose a permanent buydown if you plan to hold the loan and want maximum lifetime interest savings.
- Choose a price reduction if immediate equity and appraisal alignment matter most to you.
Local tips for Land Park deals
- Land Park price points often sit above Sacramento county averages, so small percentage changes can equal big dollar impacts. Run actual lender quotes on your specific rate and loan size.
- Appraisal matters. A price reduction lowers the contract price, which can help the appraisal align. Credits for buydowns are common, but they do not change the price used by the appraiser.
- Loan programs differ. Conventional, FHA, VA, and USDA loans can cap seller contributions or limit how credits are used. Confirm rules with your lender.
- Qualification rules vary. Many lenders underwrite to the full note rate, even with a temporary buydown, though some consider the reduced payments when documented. Check with the lender handling the loan.
How to run your own numbers
Use these quick steps to compare scenarios with your lender. A simple spreadsheet or calculator works well.
- Gather your inputs
- Purchase price, down payment percent, and the contract rate you are being quoted.
- Loan term, typically 30 years.
- For a permanent buydown, get the cost in points and the corresponding rate reduction from your lender. The points-to-rate trade-off is lender specific.
- For a 2-1 buydown, ask for the required up-front subsidy amount. For a price cut, decide the target reduction.
- Calculate the baseline
- Compute the loan amount, then the monthly principal and interest at the contract rate.
- Model each option
- 2-1 buydown: show Year 1 payment at note rate minus 2%, Year 2 at minus 1%, then the full payment from Year 3 forward. Sum the first two years of savings to estimate the subsidy.
- Permanent buydown: apply the reduced rate and find the new monthly payment, then compare the monthly savings and the points cost.
- Price reduction: lower the price by the chosen amount, recalc the loan amount, and find the new monthly payment and the immediate equity increase.
- Compare side by side
- Line up seller cash today, buyer monthly savings in the near term and long term, and the equity change. Pick the path that best supports your goals.
If you want a tailored view for a specific Land Park address, get a live lender quote and compare it to a price strategy for that property.
Ready to choose the smarter concession?
Whether you are buying or selling in Land Park, structuring the right concession can shape the outcome. If you want to evaluate a specific property, I can help you weigh payment relief, equity, appraisal strategy, and negotiation timing around current Land Park comps. For a clear plan that fits your goals, connect with Angela Heinzer.
FAQs
What is a 2-1 buydown and how does it work?
- A 2-1 buydown lowers your interest rate by 2% in year one and 1% in year two, funded up front as a subsidy, then the loan returns to the full note rate in year three.
How do discount points reduce my rate in Land Park examples?
- One point equals 1% of the loan amount, and a common rule of thumb is about a 0.25% rate reduction per point, but exact pricing varies by lender and market conditions.
Does a price reduction help appraisal more than a seller credit?
- Yes, a price reduction changes the contract price used by the appraiser, while a seller credit for a buydown does not change the price used in comparables.
Are seller-paid buydowns allowed on all loan programs?
- Many programs allow seller credits, but caps and rules differ across conventional, FHA, VA, and USDA loans, so verify details with your lender.
Will a 2-1 buydown help me qualify for a mortgage?
- Lenders often underwrite to the full note rate, though some consider the reduced payments when the buydown is documented, so ask the lender handling your loan.
If I plan to refinance soon, which option makes sense?
- Many buyers in that situation prefer a 2-1 buydown for strong short-term relief while they wait to refinance, but compare it to a price cut or points based on your timeline.
