If you are selling a Louisville home this fall, here is the question that matters: should you cut the price, or offer the buyer a credit to buy down their mortgage rate?
With rates over 7%, the credit often wins. The same dollars can lower a buyer's monthly payment about two to three times as much as a price cut, and your sale price stays where it is. Here is how it works, with real numbers, and the rules that limit it.
Why this matters right now
Freddie Mac's average 30-year fixed mortgage rate was 7.32% for the week of October 22, 2026. A year ago it was 6.19%.
Nationally, sellers gave buyers some kind of concession (money toward closing costs, repairs or a rate buydown) in 44.7% of home sales in the three months ending in August 2026, according to Redfin. That is up from 42.6% a year earlier.
In Jefferson County, there were 2,527 single-family homes for sale in September, up 31.5% from a year ago. Homes that sold went for 98.4% of their list price, on average, per the Louisville MLS (Multiple Listing Service).
More homes, higher rates, and buyers who care about the monthly payment. That is the setup where a buydown makes sense.
What a rate buydown is
A rate buydown is money paid up front to the lender so the buyer gets a lower interest rate. When the seller pays it, it is called a seller-paid buydown, and it is one type of seller concession. There are two kinds.
Permanent buydown (discount points)
A discount point costs 1% of the loan amount. Freddie Mac says one point could lower the rate by about 0.25%, though it varies by lender and by day. A permanent buydown lowers the rate for the life of the loan.
Temporary buydown (2-1 or 1-0)
A temporary buydown lowers the payment for the first year or two only. In a 2-1 buydown, the rate is 2% lower in year one, 1% lower in year two, and then goes to the full rate in year three. The money is put into an account at closing and used to cover the difference each month. Lenders still qualify the buyer at the full rate, so the buyer has to be able to afford the payment in year three.
The math on a $300,000 Louisville home
Say a buyer is putting 10% down on a $300,000 home, a $270,000 loan at 7.32%. Their principal and interest payment is about $1,855 a month. You, the seller, are willing to give up $9,000. Here is what each option does to their payment:
Option | What the buyer pays per month (principal and interest) | Monthly savings |
|---|---|---|
No concession | $1,855 | None |
$9,000 price cut (price drops to $291,000) | $1,799 | About $56 |
$9,000 toward a permanent buydown (about 3.3 points, rate to about 6.49%) | About $1,704 | About $150, for the life of the loan |
About $6,400 toward a 2-1 temporary buydown | $1,503 in year 1, $1,675 in year 2, $1,855 after | $352 in year 1, $180 in year 2 |
These are estimates. They do not include taxes, insurance or mortgage insurance, and the rate drop per point depends on the lender's pricing that day. With the 2-1 buydown, the leftover $2,600 of your $9,000 could go toward the buyer's other closing costs.
Here is the part sellers miss. In all three cases, you give up the same $9,000. But a price cut only takes about $56 off the buyer's payment. The permanent buydown takes off about $150, almost three times as much, every month, for as long as they keep the loan. Over five years, that is about $9,000 in payments saved, compared with about $3,300 for the price cut.
And the price cut has a cost you do not see right away: a lower sale price becomes a lower comparable sale for every home in your neighborhood.
Which one should a seller offer?
If the buyer is planning to stay a long time, a permanent buydown usually helps them the most.
If the buyer expects their income to go up, or hopes to refinance if rates fall, a 2-1 buydown gives them the biggest relief right when they move in.
If the buyer is short on cash to close, a credit toward closing costs may matter more than the rate.
The easiest move: advertise it. "Seller will contribute $9,000 toward the buyer's rate buydown or closing costs" in the listing gets more attention from buyers watching their payment than a $9,000 price cut does. Then let the buyer and their lender decide how to use it.
The limits: how much a seller can pay
Every loan program caps how much the seller (or anyone else with a stake in the sale) can contribute. Money for a buydown counts toward that cap.
Loan type | Seller contribution limit |
|---|---|
Conventional, less than 10% down | 3% of the price |
Conventional, 10% to just under 25% down | 6% |
Conventional, 25% or more down | 9% |
Conventional, investment property | 2% |
FHA (Federal Housing Administration) | 6% |
VA (Department of Veterans Affairs) | 4% in concessions (ordinary closing costs are not counted) |
USDA (U.S. Department of Agriculture) | 6% |
Sources: Fannie Mae Selling Guide B3-4.1-02, HUD (the U.S. Department of Housing and Urban Development), the VA, and USDA. A few more rules to know:
Temporary buydowns on conventional loans are for a home the buyer will live in or a second home. They are not allowed on investment properties.
Kentucky Housing Corporation (KHC) loans, which many first-time buyers here use, do not offer the 2-1 buydown. KHC's conventional program also caps seller contributions at 3% when the buyer puts down less than 10%, and 6% otherwise.
A seller credit cannot be more than the buyer's actual allowed costs. Money that cannot be used does not turn into cash for the buyer.
If the loan is paid off early, leftover temporary buydown money generally goes toward the loan payoff or as the buydown agreement says. It is not a cash refund to the buyer.
For buyers: ask for it
If you are buying this winter, you have more room to negotiate than you did a year ago. Before you ask for a lower price, ask your lender to run the payment both ways: price cut versus seller-paid buydown. Then write your offer around whichever saves you more each month.
Get your numbers first with the Kentucky monthly mortgage payment calculator.
Get pre-approved so your offer is taken seriously: start here, or read how to get pre-approved in Kentucky.
First home? Read the Kentucky first-time home buyer guide.
Want new listings as they hit? Set up free property alerts.
For sellers: run your net
A buydown and a price cut cost you the same, so the question is which one gets your home sold faster. Run your take-home number with the seller net proceeds calculator, and check what your home is worth today with the home value tool. If your listing already expired, read what to do next after a Louisville listing expires.
Frequently asked questions
Is a seller-paid rate buydown better than a price reduction?
Usually, when rates are high. In our example, $9,000 toward a permanent buydown lowered the payment by about $150 a month, compared with about $56 for a $9,000 price cut. The seller gives up the same amount either way.
How much can a seller pay toward a buyer's rate buydown?
It depends on the loan: 3% to 9% of the price for conventional loans based on the down payment, 2% for conventional investment properties, 6% for FHA and USDA, and 4% in concessions for VA. Buydown money counts toward those limits.
What is a 2-1 buydown?
A temporary buydown where the rate is 2% lower in year one and 1% lower in year two, then goes to the full rate in year three. The seller's money is put into an account at closing to cover the difference.
Can I use a seller-paid buydown on a KHC loan?
Kentucky Housing Corporation does not offer the 2-1 buydown, and permanent buydowns are at KHC's discretion. Ask your KHC-approved lender what is allowed on your loan.
Does the buyer qualify at the lower rate?
No. For temporary buydowns, the buyer still qualifies at the full note rate, so they must be able to afford the year-three payment.
Want me to run it on your house?
Buying or selling in Louisville this winter? I will run the price-cut versus buydown numbers on your home or your offer, side by side. Text or email me at (502) 305-8915 or [email protected].
More Louisville numbers: the Louisville Housing Report, Is Louisville a Buyer's Market or a Seller's Market?, and closing costs in Louisville.
This is general information, not lending, legal or tax advice. Rates, limits and lender rules change, so confirm the details with your lender.
Rob Bergeron, Owner-Realtor, Winner Realty