A temporary buydown lowers your payment for the first one to three years. A permanent buydown lowers it for the whole loan. With the same dollars, a temporary buydown usually gives more help early, and a permanent buydown tends to win if you keep the loan long enough. The right answer depends on your loan, your lender's pricing and how long you keep it.
Quick answer: A temporary buydown is money set aside at closing to cover part of your payment for a short time, often two years. A permanent buydown uses discount points (fees paid up front for a lower rate) to cut the rate for the life of the loan. In this guide's example, the same seller dollars favored the temporary buydown for about the first four years. After that, the permanent buydown pulled ahead. The permanent one can also help you qualify, because it lowers the full payment the lender uses.
The temporary vs permanent buydown choice comes down to one question: how long will you keep this loan? Both options spend money at closing to make your payment smaller. They just spend it on different years.
This guide works one Las Vegas example by hand, so you can see where the two lines cross. It also covers the rules that can decide the question for you: qualifying, seller credit limits, refinancing early and taxes.
Key takeaways
- Temporary means early relief. A 2-1 buydown lowers your payment in years one and two, then the full payment starts in year three.
- Permanent means a smaller payment for good. Discount points lower the rate on your loan, so every payment is smaller for as long as you keep it.
- In our example, the crossover came at about four years. Keep the loan longer and the permanent buydown wins. Sell or refinance sooner and the temporary one wins.
- Only the permanent one helps you qualify. Under Fannie Mae and FHA rules, a temporary buydown is ignored when the lender sizes your loan.
- Both count toward seller credit limits. Fannie Mae and FHA both count seller money for either kind of buydown.
What is the difference between a temporary and permanent buydown?
The difference is how long the lower payment lasts. A temporary buydown lowers your payment for the first one to three years. A permanent buydown lowers it for the whole life of the loan.
Both are paid for at closing, and either one can be paid by you, the seller or a builder. But they work in very different ways under the hood.
| Question | Temporary buydown | Permanent buydown |
|---|---|---|
| How long the lower payment lasts | One to three years | The whole loan |
| What the money buys | A fund that pays part of each early payment | A lower rate in your loan contract |
| Rate written in your loan contract | Does not change | Lower |
| Helps you qualify | No, under Fannie Mae and FHA rules | Yes, through a lower full payment |
| Counts toward seller credit limits | Yes | Yes |
| If you refinance early | Unused money is credited toward the payoff or returned, as the buydown agreement says | The points are already spent |
How does a temporary buydown work?
A temporary buydown puts money into a buydown account at closing. That account is a separate fund that pays part of each payment for you during the first years. Meanwhile, your loan itself does not change.
The most common kind is a 2-1 buydown. Your effective rate is 2 percentage points below your note rate (the full rate in your loan contract) in year one. It is 1 point below in year two. From year three on, you pay the full amount. A 3-2-1 stretches the same idea over three years, and a 1-0 covers just one.
Fannie Mae, the company that buys many home loans from lenders, sets the limits in its Selling Guide, section B2-1.4-04. The rate can be bought down by no more than 3 percentage points. It can rise by no more than 1 point a year, and the buydown can last no more than three years. In addition, the money must sit in a custodial bank account, which is kept apart from the lender's own funds.
For the three-year version in detail, see how a 3-2-1 buydown works, month by month.
How does a permanent buydown work?
A permanent buydown means paying discount points at closing for a lower rate. The Consumer Financial Protection Bureau, or CFPB, explains that one point equals 1 percent of your loan amount. Points do not have to be round numbers, either.
The CFPB also says points show up on page 2, in Section A, of your Loan Estimate (the cost summary a lender gives you after you apply) and your Closing Disclosure. By law, points listed there must be tied to a lower interest rate. However, how much each point lowers your rate depends on the lender and the day you lock.
So the first step is always the same. Ask your lender for the rate with zero points and the rate with the points you are considering, on the same day. Then compare the two payments. If you want to test the trade from the other direction too, our conventional loan site has a tool to weigh lender credits against discount points on your own numbers.
The one idea to hold onto. A temporary buydown spends its money on your first years. A permanent buydown spreads its value over every year you keep the loan.
Temporary vs permanent buydown: which saves more?
It depends on how long you keep the loan. In the example below, the temporary buydown was ahead for about the first four years. After that, the permanent buydown pulled ahead and kept growing. Every figure here is an assumption chosen for the arithmetic. None of it is a quote, offer or commitment to lend.
The setup, illustrative only. A buyer in Las Vegas agrees to buy a $400,000 home. The seller agrees to put $8,184 toward the buyer's loan. The buyer can use it one of two ways.
Choice 1, the temporary buydown. Assume a 2-1 buydown on this loan lowers the principal and interest payment by $451 a month in year one and $231 a month in year two. Year one is 12 times $451, or $5,412. Year two is 12 times $231, or $2,772. So the account costs $5,412 plus $2,772, or exactly $8,184.
Choice 2, the permanent buydown. Assume the same $8,184, spent on discount points at an assumed price (not a Valley West price), lowers the principal and interest payment by $132 a month for the life of the loan. Both monthly figures are differences from the full payment, before taxes and insurance.
This is an educational example, not an offer, a rate quote or an advertisement of loan terms. The dollar amounts were worked from assumed loan terms that this page does not state and that Valley West is not offering. They are differences between two choices, not payments on any loan, and they leave out taxes and insurance. Your real savings, the price of points, your rate and your annual percentage rate (APR) depend on your loan, the day you lock and your credit, and are shown in your Loan Estimate. This is not a commitment to lend.
Now count what each choice puts back in your pocket. The temporary buydown pays out its $8,184 over 24 months and then stops. The permanent buydown pays $132 a month for as long as you keep the loan.
There is one more piece most comparisons leave out. A lower rate also pays down your balance a little faster. So if you sell or refinance, you owe slightly less with the permanent buydown. The table counts that too.
| If you sell or refinance after | Temporary: total help | Permanent: payments saved | Permanent: less owed | Permanent: total |
|---|---|---|---|---|
| 2 years | $8,184 | $3,168 | about $900 | about $4,070 |
| 3 years | $8,184 | $4,752 | about $1,360 | about $6,110 |
| 5 years | $8,184 | $7,920 | about $2,260 | about $10,180 |
| 7 years | $8,184 | $11,088 | about $3,160 | about $14,250 |
| 10 years | $8,184 | $15,840 | about $4,430 | about $20,270 |
Check the first row. Two years is 24 months, and 24 times $132 is $3,168. Add about $900 you no longer owe, and the total is about $4,070. That is about half of what the temporary buydown paid you. Now check the five-year row: 60 times $132 is $7,920. Add about $2,260, and the permanent buydown is ahead at about $10,180.
So why does the answer flip? Because the temporary buydown spends all of its money in two years. By contrast, the permanent buydown keeps paying you every month after that.
One honest caveat. This count ignores timing. The temporary buydown puts its money in your hands when a new owner often has the most costs. If that early help keeps you off a credit card, it can be worth more than the totals show.
Has a seller or builder offered money toward your loan? Price both buydowns first.
Send the price, the dollar amount being offered and your timeline. A Valley West loan officer can walk you through the temporary buydown, the points and the break-even month on your own numbers.
The rules and examples on this page are current as of October 3, 2026.
Get your fast quoteHow do you find your break-even month?
Divide the cost of the points by the monthly savings. The answer is how many months it takes the permanent buydown to pay back its cost in lower payments alone.
In the example, that is $8,184 divided by $132, or 62 months. That is five years and two months. Check it the other way: 62 times $132 is $8,184.
However, that simple count leaves out the smaller balance. Once you add it, the crossover in this example comes sooner, at about 49 months, or four years and one month. That is the point where the permanent buydown's payments saved plus its lower balance first top $8,184.
Here is the rule of thumb that falls out of this. If you are fairly sure you will keep the loan past your break-even month, points tend to win. If you might sell or refinance before then, the temporary buydown tends to win. For a deeper look at the points side alone, see our guide to whether paying points to lower your rate pays off.
Which buydown helps you qualify for the loan?
Only the permanent buydown, under Fannie Mae and FHA rules. That is because points lower the note rate itself, so the full payment the lender uses goes down.
A temporary buydown does not count. Fannie Mae's section B2-1.4-04 is clear on this. The lender "must qualify the borrower based on the note rate without consideration of the bought-down rate." HUD's FHA handbook, section II.A.4.a.iii, says the same thing for FHA loans: the lender must use the note rate.
Here is what that means in the example. With points, the full payment is $132 a month lower. Lenders compare that payment, plus your other debts, with your income before taxes. That share is your debt-to-income ratio, or DTI. For a buyer earning $8,000 a month, $132 is 132 divided by 8,000, or 1.65 percentage points of DTI. That can matter if you are close to a lender's limit.
So if qualifying is tight, the temporary buydown cannot rescue the file. The permanent one sometimes can.
Do seller credit limits treat them the same?
Yes. Seller money for either kind counts as an interested party contribution (money from someone with a stake in the sale, such as a seller, builder or agent).
Fannie Mae covers this in section B3-4.1-02. If "a temporary or permanent interest rate buydown" is paid for by an interested party, "the cost of that subsidy must be included in the IPC calculation." Likewise, HUD's handbook, section II.A.4.d.iii(G), says the FHA 6 percent limit includes interested party payment "for permanent and temporary interest rate buydowns."
| Loan and home | How much you borrow against the value | Seller credit limit | On a $400,000 price |
|---|---|---|---|
| Fannie Mae, home you live in or second home | More than 90 percent | 3 percent | $12,000 |
| Fannie Mae, home you live in or second home | 75.01 to 90 percent | 6 percent | $24,000 |
| Fannie Mae, home you live in or second home | 75 percent or less | 9 percent | $36,000 |
| Fannie Mae, investment property | Any amount | 2 percent | $8,000 |
| FHA | Any amount | 6 percent of the sales price | $24,000 |
Check the math: $400,000 times 0.03 is $12,000, times 0.06 is $24,000, times 0.09 is $36,000, and times 0.02 is $8,000. In the example, the $8,184 fits under even the 3 percent limit.
There is one difference worth knowing. Fannie Mae does not allow a temporary buydown on an investment property, only on a home you live in or a second home. Points are not limited that way. So for a rental, the permanent buydown is the one on the table. On top of that, the 2 percent limit means seller money only goes so far.
Want the bigger picture on seller money? See our guide to a seller-paid buydown vs a lower price.
What if you sell or refinance early?
Then the two choices end very differently. With a temporary buydown, Fannie Mae's rules say leftover money may be credited toward your payoff, or returned to you or the lender, as the buydown agreement says. So read that agreement before closing.
With points, the money is already spent. If you refinance in year two, you have collected only part of what the points cost. In the example, two years of savings came to about $4,070 against $8,184 in points.
That is why the refinance question matters so much here. Nobody can promise what rates will do. But if you would refinance the moment rates fell, count that as a short hold, and short holds favor the temporary buydown. For what a refinance does to a 2-1 buydown in detail, see what happens if you refinance during a 2-1 buydown.
How are points handled at tax time?
Points get special rules. IRS Topic 504 explains that points are a form of prepaid interest. If you itemize, points paid to buy your main home may be deductible (subtracted from your taxable income) in the year you pay them, when every IRS test is met.
Seller-paid points have a twist. The IRS treats points the seller pays on your loan as if you paid them yourself. In return, you must subtract that amount from your basis, which is your cost in the home for tax purposes.
Taxes are personal, so ask a tax professional how either choice fits your return. This page is not tax advice. The IRS topic cited here covers points. It does not address a temporary buydown account, so ask a tax professional about that too.
When does each kind of buydown make sense?
When you can name your timeline, the choice gets simple. Use this quick check.
- A temporary buydown tends to fit when you expect to sell or refinance within a few years, you qualify easily at the full payment, and the first two years will be tight for a reason you can name.
- A permanent buydown tends to fit when you plan to keep the loan past your break-even month, you need a lower full payment to qualify, or the home is an investment property.
- Run both if you are unsure how long you will keep the loan. The break-even month tells you which side of the line you are on.
New homes are a common place to face this choice. Builders sometimes offer incentive money, and some let you choose how it is spent. If yours does, ask for both versions in writing before you pick.
Then follow these steps:
- Qualify at the full payment first. Ask your lender to run your numbers at the note rate before you count on any buydown.
- Get both prices on the same day. Ask for the cost of a 2-1 buydown and the payment drop from the same dollars in points.
- Find your break-even month. Divide the cost of the points by the monthly savings.
- Check the seller credit limit. Add every seller dollar that counts toward your loan's limit and compare the total with that limit.
- Read the Closing Disclosure. Points appear on page 2, Section A. Seller money for a buydown should show either in the Seller-Paid column on page 2 or as Seller Credits in Section L, so confirm every seller dollar appears.
Want all three temporary structures side by side? Our mortgage rate buydown guide covers the 2-1, the 3-2-1 and the 1-0.
The Valley West take. In the assumed example above, the temporary buydown came out ahead for about four years, and the permanent buydown came out ahead after that. Your numbers will differ. So the honest answer to "which is better" is a date, not a product. Price both on your own loan, find your break-even month, and pick the one that matches how long you expect to keep the loan. If qualifying is tight, remember that only points lower the payment the lender uses.
Temporary vs permanent buydown: FAQ
Which one saves more
Is a temporary or permanent buydown better?
It depends on how long you keep the loan. In this guide's example, the same $8,184 favored the temporary buydown for about the first four years. After that, the permanent buydown pulled ahead, because it keeps lowering the payment for the life of the loan.
How do you find the break-even point on discount points?
Divide the cost of the points by the monthly payment savings. In this guide's example, $8,184 divided by $132 is 62 months. Counting the smaller balance a lower rate leaves you, the crossover came sooner, at about 49 months.
Does a temporary buydown help you qualify for a mortgage?
Under Fannie Mae and FHA rules, no. Both have lenders qualify you at the note rate, which is the full rate in your loan contract. A permanent buydown can help, because it lowers that note rate and the full payment.
Rules and limits
Do both buydowns count toward seller credit limits?
Yes. Fannie Mae counts seller money for a temporary or permanent buydown toward its 3, 6 or 9 percent limit on a home you live in. HUD counts both toward the FHA 6 percent limit.
Can you get a temporary buydown on an investment property?
Not on a loan sold to Fannie Mae. Its rules allow temporary buydowns only on a home you live in or a second home. Discount points are not limited that way.
What happens to a temporary buydown if I refinance early?
Under Fannie Mae's rules, leftover money may be credited toward your payoff, or returned to you or the lender, as the buydown agreement says. Points, by contrast, are already spent.
Article history
October 3, 2026. First published. Fannie Mae Selling Guide sections B2-1.4-04 (dated 08/07/2024) and B3-4.1-02 (dated 05/07/2025) were read on Fannie Mae's site that day, using the date shown on each section's own heading.
HUD Handbook 4000.1 was read on HUD's site that day, in the edition whose pages are marked last revised August 12, 2026. IRS Topic 504 (marked reviewed or updated September 24, 2026) and the CFPB's page on discount points were also read that day.
The arithmetic in each example was rechecked: the $8,184 account, the 62-month and 49-month break-even counts, the comparison table, the DTI example and the four credit limits.
- Next review: when Fannie Mae or HUD change buydown or seller credit rules, or by January 15, 2027, whichever comes first.
About the publisher
Find out which buydown fits how long you will keep the loan
One conversation can cover three things. First, whether you qualify at the full payment. Second, what a temporary buydown and points each look like on your own loan. Third, where your break-even month falls.
Start your fast quoteAcross Valley West: Government loans add their own rules to this choice. Our FHA loan site explains how FHA's 6 percent cap on seller help works in Las Vegas, and our VA loan site walks through a seller-funded temporary buydown on a VA home loan.
Keep reading
- Mortgage rate buydowns explained
- Discount points and the break-even math
- Seller-paid buydown vs price reduction
- 3-2-1 buydown calculator
- Can you refinance a 2-1 buydown?
- Debt-to-income ratio
Sources: Fannie Mae and HUD
- Fannie Mae Selling Guide, B2-1.4-04, Temporary Interest Rate Buydowns (08/07/2024). Note-rate qualifying, the 3-point, 1-point-a-year and three-year limits, the custodial account, eligible property types and leftover funds at payoff.
- Fannie Mae Selling Guide, B3-4.1-02, Interested Party Contributions (05/07/2025). The 3, 6, 9 and 2 percent limits and the rule that temporary and permanent buydowns funded by an interested party count toward them.
- HUD Handbook 4000.1, FHA Single Family Housing Policy Handbook (last revised August 12, 2026). Section II.A.4.d.iii(G), the 6 percent limit, which includes permanent and temporary buydowns; section II.A.4.a.iii, qualifying at the note rate.
Sources: CFPB and IRS
- CFPB, What are discount points and lender credits and how do they work? One point equals 1 percent of the loan amount; points appear on page 2, Section A, of the Loan Estimate and Closing Disclosure.
- IRS Topic 504, Home mortgage points (reviewed or updated September 24, 2026). Points as prepaid interest, the tests for deducting them, and the basis rule for seller-paid points.
Verification note
Last updated: October 3, 2026. Every source listed above was read on October 3, 2026, and the arithmetic in each example was rechecked.
What this page refuses to do
It quotes no interest rate, no annual percentage rate, no loan amount, no loan term, no down payment and no monthly payment amount on any loan. The monthly figures it uses are differences between choices, and they leave out taxes and insurance. The price, the seller's dollars, the buydown account, the monthly drops, the income and the amounts owed are assumptions chosen for the arithmetic, not quotes.
It names no lender other than our own. It is not legal or tax advice. Your purchase contract, your note and your buydown agreement control.
This article is for general information and is not legal, tax or financial advice. Valley West Mortgage is an independent mortgage lender, NMLS #65506, licensed in Nevada. Equal Housing Opportunity. Valley West Mortgage is not affiliated with, or acting on behalf of or at the direction of, Fannie Mae or any government agency, including HUD, the FHA, the VA and the IRS. This page is not from HUD, the FHA or the VA and was not approved by any of them. FHA loans are insured by the FHA and made by private lenders. Nothing on this page is an offer of credit, a rate quote, a preapproval or a commitment to lend, and loan terms vary by borrower, property and program. All figures are illustrative and not a quote, offer, or commitment to lend.
