Seller Credit vs. Price Reduction Calculator
Compare a seller credit used for a rate buydown with the same amount taken off the price, and see which lowers the buyer’s payment more.
Seller Credit or Price Reduction: Which Helps the Buyer More?
When a seller agrees to give up $10,000, there are two ways to deliver it. A price reduction lowers the purchase price, which trims the loan amount, the down payment, and the property taxes a little. A seller credit leaves the price alone and puts the money toward the buyer’s costs, most powerfully a rate buydown.
The two feel very different in the monthly payment. A price cut spreads the benefit over 30 years, so the payment drops only slightly. A credit used for a temporary buydown concentrates the benefit in the first one to three years, when buyers usually feel the most stretched. A credit used for discount points lowers the rate for the life of the loan.
Over a long hold, the price reduction usually comes out ahead in total dollars, because the buyer borrows less. For a buyer who needs a lower payment now, or who expects to refinance when rates fall, the credit often does more. This calculator shows both, so agents and buyers can negotiate with numbers.
Example: On a $625,000 purchase with a $500,000 loan at 6.5%, a $10,000 price reduction lowers the payment by about $51 a month, plus about $10 in property tax. The same $10,000 as a seller credit pays for a 1-1 buydown that lowers the payment by about $321 a month for two years, with roughly $2,300 left over for closing costs.
Common Questions
Does a seller credit cost the seller more than a price reduction?
No. A $10,000 credit and a $10,000 price reduction reduce the seller’s proceeds by about the same amount. The difference is in how the buyer benefits.
Is there a limit on seller credits?
Yes. Conventional loans cap seller contributions at 3%, 6%, or 9% of the price depending on the down payment, and at 2% for investment properties. FHA allows 6% and VA allows 4%. The credit also cannot exceed the buyer’s actual closing costs, prepaid items, and buydown cost.
What happens to buydown funds if the buyer refinances early?
With a temporary buydown, unused funds are typically applied to the loan balance when the loan is paid off. Confirm the terms with the lender.