The same dollar, four very different outcomes
This is one of the most common arguments at the offer stage, and both sides usually reason about it wrongly. The listing agent treats a price reduction and a concession as interchangeable because from the seller's side they are — identical net proceeds. The buyer's agent often defaults to the price reduction because it's simpler to explain.
But the four uses do genuinely different things to a buyer's finances, and the gap between the best and worst option on the same dollar amount is routinely five figures over a normal holding period.
Smaller loan, smaller down
Lowers the loan and the down payment proportionally. Simple, permanent, and it lowers your property tax basis in many jurisdictions.
Lower rate for the whole term
Buys discount points. The reduction applies to the entire loan balance for as long as you keep it, which is why it often wins.
Two cheap years, then full price
Escrow subsidises years one and two. Lowest early payment by far; nothing after month 24.
Keeps cash in your pocket
Payment unchanged, but you arrive at closing with more reserves. Capped at your actual costs.
Why the permanent buydown often beats the price cut
This surprises people, and the reason is leverage. A $15,000 price reduction on a 10%-down purchase removes $13,500 from the loan — and the interest you avoid is the interest on that $13,500 alone.
Spend that same $15,000 on discount points and the rate reduction applies to the full $405,000 for as long as you hold the loan. The concession's reach is roughly thirty times larger. That advantage grows the longer you keep the mortgage and shrinks if you refinance early — which is exactly the tradeoff the hold-period input is there to test.
Why the lowest payment isn't the answer
The 2-1 buydown almost always produces the lowest first-year payment, often by several hundred dollars a month, and it is consequently the option that gets marketed hardest. It is also the one that expires. In year three you are paying the full note rate on the full balance, and nothing about your loan is better than it would have been.
Underwriting already knows this, which is why you qualify at the note rate rather than the subsidised rate. A temporary buydown fits a buyer who can comfortably afford the full payment and would simply prefer lower ones while furnishing a house. It is a poor fit for a buyer who needs the reduced payment to make the numbers work.
The comparison here uses total outlay over your hold period — cash at closing, every payment made, and the balance still owed at the end — because comparing monthly payments alone hides both principal paydown and the cash you never got back.
The trap in the closing-cost credit
A credit toward closing costs can only offset costs you actually incur. If the seller offers $15,000 and your closing costs are $9,000, the remaining $6,000 does not come back to you as cash — it typically evaporates. The seller keeps it, and you got nothing for it.
This is worth checking before you negotiate the structure, because it's the one option where asking for more can produce exactly zero additional benefit. If the concession exceeds your closing costs, the excess belongs somewhere else: points, or a price reduction.
Know the cap before you write the offer
Loan programs limit how much a seller may contribute. Conventional financing commonly allows 3% of the price with less than 10% down, 6% between 10% and 25% down, and 9% above that. FHA allows 6%; VA allows 4%. Exceeding the limit doesn't simply get trimmed at closing — it can require restructuring the deal late, when you have the least leverage.
Also worth confirming with your lender: the rate reduction per discount point is not fixed. It moves with the market and varies by lender, credit profile, and loan type. The default here assumes a quarter point of rate per point paid, which is a reasonable planning figure and a poor substitute for an actual quote.