Feeling squeezed by today’s mortgage rates but don’t want to slash the sale price? In many Washington, DC deals, you can ask the seller to fund a rate buydown that lowers your payment. If you’re a seller, this can make your listing stand out without changing the headline price. In this guide, you’ll learn how seller credits work, what each loan program allows, a DC-focused example, and a simple checklist to use with your lender and agent. Let’s dive in.
Seller credits and rate buydowns, explained
Seller credits, also called seller concessions or interested party contributions, are funds the seller provides to cover your closing costs, discount points, or a temporary buydown. Conventional loans treat these as “Interested Party Contributions,” with clear limits and documentation rules. You cannot use these funds for your down payment or reserves. See Fannie Mae’s guidance on interested party contributions for the formal definition and caps (Fannie Mae IPC rules).
A permanent buydown uses discount points to lower your rate for the life of the loan. One point equals 1 percent of the loan amount, and each point typically reduces the rate by about 0.125 to 0.25 percent, depending on the market and lender (what discount points are). A temporary buydown, like a 2-1, lowers your effective payment for the first one to three years using an escrowed subsidy while your note rate stays the same (temporary buydown basics).
Program limits that shape your ask
Key limits to know: the amount of seller credit you can use depends on your loan type and down payment.
Conventional (Fannie Mae)
For principal residences and second homes, seller credit caps commonly run 3 percent of the price when your LTV is over 90 percent, 6 percent when LTV is 75.01 to 90 percent, and 9 percent when LTV is 75 percent or less. Investment properties are typically capped at 2 percent. The cost of either a temporary or permanent buydown counts toward these limits, and credits cannot fund your down payment or reserves (Fannie Mae IPC rules).
FHA
FHA allows interested parties to contribute up to 6 percent of the lesser of the sales price or appraised value. Credits can cover discount points and temporary or permanent buydowns, but cannot fund your minimum required investment for down payment. Overages can be treated as an inducement to purchase and may reduce the price used for LTV (FHA policy overview).
VA
VA distinguishes normal closing costs from concessions. Many concessions are capped at 4 percent of the appraised “reasonable value,” though some customary closing costs and points are treated separately. Because treatment varies by item, your lender must classify each cost correctly (VA 4 percent concession rule explainer).
How buydowns get funded and disclosed
A typical process looks like this:
- You and the seller agree to a specific credit in the contract and note the purpose, such as funding a 2-1 temporary buydown.
- Your lender confirms the credit is within program limits and calculates the exact buydown cost.
- At closing, the seller’s funds are applied. Temporary buydown funds go to a custodial escrow the servicer draws from monthly. Permanent points are paid to the lender as discount points.
- The credit and buydown appear on your Closing Disclosure. Lenders require clear documentation and disclosure for any interested party contribution (Fannie Mae IPC rules; temporary buydown basics).
DC-specific costs and programs to factor in
Transfer and recordation taxes
DC charges deed recordation and deed transfer taxes on residential sales. Rates are commonly 1.1 percent for transfers under 400,000 dollars and 1.45 percent for higher amounts, applied to the full price. Because sellers already cover substantial local closing costs in DC, their willingness to offer extra concessions depends on net proceeds and market conditions (DC tax rates overview).
Assistance and how credits interact
Programs like HPAP and DC Open Doors can provide down payment or closing cost help for eligible buyers. If you use assistance, coordinate early because program rules can affect how much seller credit you should request and what costs it can cover. Funding levels and eligibility can change, so always confirm details with the program administrator (HPAP program page).
Commissions and negotiation
Recent industry changes have shifted how buyer agent compensation can be displayed and negotiated. While many DC sellers still offer to pay buyer agent fees from proceeds, practices are evolving and may influence how much room there is for concessions (commission model update).
Worked example: 2-1 buydown on a 600,000 dollar DC purchase
Here is a simple illustration using a 20 percent down payment and a 30-year fixed loan.
- Price: 600,000 dollars. Loan amount: 480,000 dollars. Note rate: 7.00 percent.
- Full monthly principal and interest at 7.00 percent: 3,193.45 dollars.
- With a 2-1 buydown, the effective rate is 5.00 percent in year 1 and 6.00 percent in year 2. That yields monthly payments of about 2,576.74 dollars in year 1 and 2,877.84 dollars in year 2.
- Subsidy required: roughly 616.71 dollars per month in year 1 and 315.61 dollars per month in year 2, or about 11,188 dollars total to fund the buydown. Actual costs vary by lender and pricing method (temporary buydown basics).
With 20 percent down, a conventional loan has an LTV of 80 percent. That usually allows up to a 6 percent seller credit cap, which would be 36,000 dollars on a 600,000 dollar price. In this scenario, the 11,188 dollar buydown would fit within that cap, but all credits must still be documented and disclosed (Fannie Mae IPC rules).
When to use temporary vs permanent
- You want lower payments for the first few years or expect income to rise soon. A temporary buydown can smooth the early years while you keep the long-term rate.
- You plan to refinance or move within a few years. A temporary buydown keeps upfront cost focused on short-term relief.
- You plan to hold long-term. Paying discount points for a permanent buydown can make sense if the break-even timeline works, since points reduce the rate for the life of the loan (what discount points are).
- Your lender will likely qualify you at the full note rate either way, so confirm how the buydown affects your approval and cash to close.
Offer-writing checklist for DC buyers and sellers
- Confirm your loan program early and ask about caps for seller contributions and whether a buydown is allowed (Fannie Mae IPC rules).
- Get written cost quotes from your lender for a 2-1, 3-2-1, and permanent points so you can compare options (temporary buydown basics).
- Make the contract language specific. State the dollar amount and that funds are for closing costs and a temporary or permanent buydown, as applicable.
- Check your Closing Disclosure for the seller credit line and the buydown escrow or discount points entries.
- Ask a tax professional how seller-paid points may affect your deductions and basis. IRS resources can help you prepare questions (IRS Publication 530).
- If using HPAP or DC Open Doors, coordinate documentation and timelines with the program administrator (HPAP program page).
Ready to run numbers for your DC move?
If you want a clear plan that fits your goals, let’s look at real quotes, compare buydown paths, and align your offer with local norms. Reach out to Francisco Hoyos for a consultative walkthrough tailored to your price point and neighborhood.
FAQs
Can DC sellers give me cash at closing to buy down my rate?
- No. Seller credits must be disclosed and applied through lender-approved channels, and they count toward program limits for interested party contributions (Fannie Mae IPC rules).
How much does a 2-1 buydown usually cost on a typical loan?
- It equals the sum of the monthly differences between the full payment and the discounted payments during the buydown period, which varies by loan amount and rate (temporary buydown basics).
Will my lender qualify me at the lower buydown payment?
- Usually no; most lenders underwrite at the full note rate and require that the buydown cost be counted within seller credit limits (Fannie Mae IPC rules).
Can seller credits cover my down payment on FHA or conventional loans?
- No. For FHA, the seller cannot fund your minimum required investment, and conventional loans also prohibit using seller credits for down payment (FHA policy overview).
Are seller-paid points tax deductible for DC homebuyers?
- Seller-paid points are generally treated as if you paid them, which may allow a mortgage interest deduction if IRS conditions are met; ask a tax professional and review IRS guidance (IRS Publication 530).
Do HPAP or DC Open Doors change how much seller credit I should request?
- They can, since assistance covers some costs and the program may have its own documentation or limits, so coordinate your offer details with your program counselor and lender (HPAP program page).
