Are today’s mortgage payments keeping your Lake Oswego move on hold? You have more options than waiting for rates to drop. A rate buydown can lower your payment now, help you qualify with confidence, and give you room in your budget during the first few years of homeownership. In this guide, you will learn what buydowns are, how they work in Oregon, simple payment examples, and how to negotiate seller or builder credits that make the numbers work. Let’s dive in.
What is a rate buydown?
A rate buydown is money paid up front to reduce your mortgage interest rate. You can lower the rate for a short period with a temporary buydown or for the life of the loan with a permanent buydown. Funds can come from you, the seller, or a builder, and your lender documents everything at closing.
In Lake Oswego and the rest of Clackamas County, buydowns are common on new construction and appear in resale negotiations when sellers want to attract buyers. Even a small monthly reduction can help you feel more comfortable with higher price points.
Temporary buydowns explained
Temporary buydowns reduce your rate for the first years of the loan, then the rate returns to the permanent note rate.
2-1 buydown
- Year 1 is 2 percentage points below your permanent note rate.
- Year 2 is 1 percentage point below your permanent note rate.
- Year 3 and beyond return to your permanent rate.
If your permanent rate is 6.50%, Year 1 would be 4.50% and Year 2 would be 5.50% before returning to 6.50%.
3-2-1 buydown
- Year 1 is 3 percentage points below your permanent rate.
- Year 2 is 2 points below.
- Year 3 is 1 point below.
- Year 4 and beyond return to your permanent rate.
The savings are larger up front than a 2-1 but cost more to fund.
How temporary buydowns are funded
Your lender collects a lump sum at closing that equals the present value of the payment subsidy during the buydown period. That lump sum can be paid by you, a seller credit, or a builder incentive. The exact amount is calculated by your lender and appears on your closing documents.
Permanent buydowns (discount points)
A permanent buydown uses discount points to lower your interest rate for the full term. One point typically equals 1% of your loan amount. The rate reduction per point varies with market pricing, but a common rule of thumb is about 0.25% per point on a 30-year fixed loan. Your lender will show the exact pricing for your scenario.
Permanent buydowns are best if you expect to keep the loan long enough to pass the break-even point, where your monthly savings outweigh the up-front cost.
Qualification and underwriting
Many lenders require that you qualify at the permanent note rate, not the temporarily reduced rate. Some programs or investors may apply different rules. Your lender will also document the source of buydown funds and include a buydown agreement on your Loan Estimate and Closing Disclosure. Plan for this early so your credit and closing timeline stay on track.
Who can pay and program rules
- Buyer funds: You can pay discount points or, in some cases, the temporary buydown funds yourself.
- Seller credits: Resale sellers can contribute to a buydown as a seller concession, within program caps.
- Builder incentives: New-home builders often offer buydowns or closing-cost credits, sometimes tied to using a preferred lender.
Typical seller concession caps vary by program and are applied to the total of all paid costs:
- Conventional: Common primary-residence caps are 3%, 6%, or 9% depending on down payment and property type.
- FHA: Often up to 6% of the price.
- VA: Generally allows concessions, commonly up to 4% for certain costs. Rules are specific.
- USDA: Often up to 6%.
Lender overlays can differ, so confirm your program’s limits before you draft an offer.
Payment examples for Lake Oswego
Assumptions for simple illustrations:
- Loan amount: $600,000
- Term: 30-year fixed
- Permanent note rate: 6.50%
- Payments shown are principal and interest only
Baseline with no buydown
- 6.50% payment: about $3,792 per month
2-1 buydown on a 6.50% note
- Year 1 at 4.50%: about $3,042 per month
- Year 2 at 5.50%: about $3,408 per month
- Year 3+ at 6.50%: about $3,792 per month
- Estimated savings: about $750 per month in Year 1 and $384 per month in Year 2
3-2-1 buydown on a 6.50% note
- Year 1 at 3.50%: about $2,695 per month
- Year 2 at 4.50%: about $3,042 per month
- Year 3 at 5.50%: about $3,408 per month
- Year 4+ at 6.50%: about $3,792 per month
Permanent buydown example
- Paying 1 point on $600,000 equals $6,000
- If that lowers your rate from 6.50% to 6.25%: payment is about $3,690
- Savings: about $102 per month, break-even in roughly 4.9 years
Your lender will provide precise numbers and the upfront cost to fund any temporary buydown.
When buydowns make sense
- You want lower payments for the first 1 to 3 years while you settle into a new budget or expect income growth.
- You prefer to use seller or builder money to improve affordability rather than reduce price.
- You plan to hold the loan beyond the break-even period for a permanent buydown.
- You are buying new construction where incentives are available and can be compared side by side.
Local context in Lake Oswego
Lake Oswego and many Clackamas County neighborhoods sit in higher price bands. Even a few hundred dollars per month can influence qualification and comfort. Builders often market temporary buydowns to showcase lower first-year payments, and resale sellers may use credits to stand out if market activity cools or a precise credit helps a qualified buyer close on time.
How to structure your offer
Be clear, specific, and lender-aligned. Here are practical clauses you can adapt with your broker and lender:
- “Seller credit of $XX, to be applied toward lender-accepted temporary buydown funds or discount points as permitted by the lender and loan program; lender to provide written buydown funding instructions and confirmation prior to closing.”
- “This credit is contingent upon lender confirmation that the offered funds will be accepted and applied to a temporary/permanent buydown as requested; buyer to provide the Closing Disclosure showing application of the buydown.”
- “Seller credit to be applied first to lender-required buydown payment(s); any remaining credit may be applied to closing costs.”
- For builders: “Builder incentive of $XX documented in a written builder incentive addendum to be attached to this purchase agreement; buyer’s lender to accept incentive per lender requirements.”
If a seller resists a credit, consider a price-and-credit structure that preserves the seller’s net while funding the buydown, keeping appraisal and program caps in mind.
Negotiation tips that work
- Get your lender’s written buydown cost quote before writing the offer.
- Ask for a specific dollar amount tied to a 2-1, 3-2-1, or defined points, not a vague request.
- Present the credit as a solution that keeps timing and qualification on track.
- If needed, propose alternatives such as a smaller temporary buydown, a price-and-credit swap, or a closing timeline that benefits the seller.
Buyer checklist
- Confirm your lender allows temporary buydowns for your loan type and how you must qualify.
- Request a written estimate for the lump sum needed to fund the buydown or the cost of discount points.
- Verify seller concession caps for your program and down payment.
- Review how the buydown will appear on your Closing Disclosure.
- For permanent points, calculate your break-even period.
- Budget for the payment increase when the temporary buydown ends.
Seller and builder checklist
- Ask a lender for the exact buydown cost and whether it counts toward concession caps.
- Decide whether any incentive requires the buyer to use a preferred lender and document it.
- Ensure incentives and credits are clearly disclosed to avoid closing surprises.
Pros and cons at a glance
Pros of temporary buydowns
- Lower early payments to ease the transition into homeownership.
- Helpful if you expect income growth in the next 1 to 3 years.
- Can be funded by sellers or builders so you keep more cash.
Cons and risks
- Payments rise after the buydown period ends, so plan ahead.
- Program caps and lender overlays may limit what you can do.
- If you cannot qualify at the permanent rate, approval may be difficult unless your lender allows a different method.
Ready to run the numbers?
If you are buying or selling in Lake Oswego or anywhere in Clackamas County, the right buydown strategy can make a real difference. Let a local, experienced advisor help you compare options, structure the credit, and keep your escrow smooth from offer to close. To explore what fits your goals, connect with Tracy Brophy to Request a Market Consultation or Free Home Valuation.
FAQs
What is a rate buydown in Oregon?
- A buydown is money paid at closing to reduce your mortgage rate temporarily or permanently, funded by you, a seller credit, or a builder incentive.
How do 2-1 and 3-2-1 buydowns differ?
- A 2-1 reduces your rate by 2% in Year 1 and 1% in Year 2, while a 3-2-1 lowers it by 3%, 2%, and 1% over the first three years before returning to the permanent rate.
Can a seller pay for my buydown on a conventional loan?
- Yes, within seller concession caps that commonly range from 3% to 9% of the price depending on down payment and property type; confirm limits with your lender.
What does a 2-1 buydown save on $600,000?
- Using a 6.50% note rate example, Year 1 saves about $750 per month and Year 2 about $384 per month before payments return to the permanent rate.
Do I qualify at the reduced buydown rate?
- Often no; many lenders qualify you at the permanent note rate after the buydown ends, though guidelines can vary by program and investor.
Are seller-paid points tax-deductible to me?
- Tax treatment varies and third-party paid points are often not deductible by the buyer; consult a tax professional for guidance on your situation.
