When buyers talk about affording a home, the conversation usually stops at the price. But two tools can change what you actually pay without changing the price much at all: seller concessions, which cover some of your closing costs, and rate buydowns, which lower your interest rate for a period or for the life of the loan. Both are common in New Braunfels, especially with builders, and both are easy to misunderstand. This guide explains how they work, what the limits are, and how to decide whether either belongs in your offer. Programs, limits, and rates change, so confirm current details with your lender.
THE BASICS
What a Seller Concession Is
A seller concession, sometimes called a seller credit or seller-paid closing costs, is an agreement written into the contract that the seller will pay part of the buyer's costs at closing. It does not give you cash. It reduces what you need to bring to the table, and it can be applied to things like lender fees, title charges, prepaid items such as taxes and insurance, or a rate buydown. Concessions are negotiated like any other term, and they usually come with a higher price or a tradeoff somewhere else in the deal.
THE LIMITS
How Much Can a Seller Contribute?
Lenders cap how much a seller can contribute, and the cap depends on the loan type. These are the general limits, though your lender will confirm the current numbers.
- Conventional: typically 3% of the price with less than 10% down, 6% with 10% to 25% down, and 9% with more than 25% down; the limit is lower for investment properties
- FHA: up to 6% of the price; see FHA Loans in New Braunfels for more on how FHA works
- VA: up to 4% of the loan amount for concessions beyond the buyer's normal closing costs; see VA Home Loans in New Braunfels
- Concessions generally cannot exceed the buyer's actual closing costs, so a credit larger than your costs does not turn into a refund
RATE BUYDOWNS
Two Kinds of Buydown
A buydown trades money up front for a lower interest rate. There are two main versions, and they work very differently.
Temporary Buydown
A temporary buydown lowers your rate for the first year or two, then it returns to the note rate. In a 2-1 buydown, the rate is 2 percentage points lower in year one and 1 point lower in year two, then it steps up to the full rate for the remaining term. The money to cover the difference is paid at closing and held in an escrow account that supplements your payments. The seller or builder often funds it. You qualify for the loan at the full note rate, and the lower payment is a temporary benefit, not a permanent change.
Permanent Buydown (Discount Points)
Paying discount points at closing lowers your rate for the life of the loan. One point costs 1% of the loan amount, and each point typically lowers the rate by roughly a quarter of a percentage point, though the exact reduction varies by lender and market. It costs more up front, but the savings continue every month for as long as you keep the loan.
A WORKED EXAMPLE
What the Numbers Look Like
These examples are illustrative only, using a $360,000 loan on a 30-year fixed mortgage at a 6.5% note rate, with principal and interest only. Actual rates, costs, and payments will differ.
- At 6.5% with no buydown, principal and interest is about $2,275 per month
- With a 2-1 buydown, payments would be about $1,824 in year one and $2,044 in year two, then $2,275 afterward; the total savings are about $8,200, which is roughly what the seller or builder would need to fund
- With one discount point costing $3,600 that lowers the rate to 6.25%, the payment drops to about $2,217, a savings of about $59 per month; it would take roughly five years to recoup the cost, so it only pays off if you stay in the home and keep the loan that long
THE CHOICE
Buydown, Price Reduction, or Closing Cost Credit?
When a seller is willing to give up some money, there are a few ways to spend it, and the best one depends on your goals.
- A lower price reduces your loan, your payment, your property tax basis, and your down payment, and it is permanent; it does not depend on a lender allowing a credit
- A temporary buydown eases the first years of payments, which can help if you expect your income to rise or plan to refinance if rates fall; it does nothing if rates stay the same and you cannot afford the full payment
- A permanent buydown suits buyers who plan to keep the loan for a long time
- A closing cost credit helps most when your cash is limited and you want to keep savings in reserve
WATCH-OUTS
Appraisal and Contract Details
Concessions can raise the price, and the home still has to appraise at that price; see What Happens If the Appraisal Comes in Low. Hoping to refinance later is a plan, not a guarantee, since future rates and your qualifying situation could differ. Be careful, too, about comparing two offers on price alone; an offer with a higher price and a seller credit may net the seller about the same as a lower one with none. See Making a Winning Offer in New Braunfels for how sellers weigh offers beyond the headline number.
NEW CONSTRUCTION
Builder Incentives Work a Little Differently
Builders frequently advertise buydowns and closing cost help, and some tie the best incentives to using their preferred lender. Compare the lender's rate and fees against another quote before you accept, since an incentive is only a deal if the total cost holds up. Our guide to new construction versus resale covers other questions to ask a builder.
NEXT STEP
Run the Numbers Before You Write the Offer
The right structure depends on your cash, your loan, and how long you plan to stay. Todd Spencer works with local lenders who can model a few versions of your offer side by side, so you can see what each one costs and saves before you commit. For the bigger picture on budgeting, start with How Much House Can You Afford in New Braunfels and closing costs for buyers in Texas.
Common questions
Frequently asked questions.
What is a seller concession?
A seller concession is an agreement in the contract for the seller to pay part of the buyer's closing costs. It reduces the cash the buyer needs at closing but does not give the buyer money, and it is capped by the loan type.
How much can a seller pay toward closing costs?
It depends on the loan. Conventional loans generally allow 3%, 6%, or 9% depending on the down payment, FHA allows up to 6%, and VA allows up to 4% for concessions beyond normal closing costs. Your lender confirms the exact current limits.
What is a 2-1 buydown?
A 2-1 buydown is a temporary rate reduction of 2 percentage points in the first year and 1 point in the second year, after which the rate returns to the full note rate. The cost is paid up front, often by the seller or builder, and held in escrow.
Is a rate buydown worth it?
It depends on how long you keep the loan and what else the money could do. A permanent buydown with discount points pays off only after a break-even period, often several years. A temporary buydown lowers early payments but does not change the long-term rate.
Should I ask for a price reduction or a seller credit?
A price reduction is permanent and lowers your loan balance, while a credit helps with cash at closing or funds a buydown. Which is better depends on whether your constraint is monthly payment or cash on hand, and a lender can compare both.
Do seller concessions affect the appraisal?
They can. A concession is often paired with a higher price, and the home still has to appraise at that price. If the appraisal comes in low, the deal has to be adjusted.
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