Thinking about offering an incentive to get your Florence home sold, but not sure if a rate buydown or a price cut will work better? You are not alone. With interest rates shifting and buyers watching monthly payments, the right move can make the difference between a quick offer and weeks on the market. In this guide, you will see how both options work, how they affect payments and appraisals, and a simple way to choose what fits your Boone County sale. Let’s dive in.
Rate buydowns explained
A rate buydown lowers the buyer’s mortgage interest rate by using money at closing to prepay interest. The funds can come from you as the seller, from the buyer, or from a builder. When you pay, it is treated as a seller concession and is documented on the closing statement.
Temporary buydowns (like 2-1)
With a 2-1 buydown, the buyer’s rate is lower for the first two years, then returns to the full note rate. For example, if the note rate is 6.25 percent, the payment might reflect about 4.25 percent in year one and about 5.25 percent in year two. Temporary buydowns help early cash flow, which can improve buyer comfort and sometimes qualification, based on lender rules.
Permanent buydowns
A permanent buydown uses points to reduce the rate for the life of the loan. This can be funded by the buyer or by you as a concession, subject to program limits. Permanent buydowns improve long-term affordability, not just the first few years.
Price cuts explained
A price cut simply lowers the contract price. This reduces the buyer’s loan amount, which lowers the monthly principal and interest and the total interest paid over time. Price cuts can also help an appraisal match the contract price, which reduces the risk of a low appraisal disrupting the deal.
How each option changes payments
- Price cut: reduces the loan principal. Monthly payments and total interest drop for the entire loan term.
- Buydown: reduces the interest rate and monthly payment, either temporarily or permanently. For temporary buydowns, the payment steps up after the buydown period.
Illustrative example
Example only, for illustration:
- List price: $300,000. 30-year fixed. Note rate: 6.25 percent.
- Option A, price cut: Reduce price to $290,000. Buyer locks 6.25 percent.
- Option B, 2-1 buydown: Keep price at $300,000. Seller funds a 2-1 buydown.
Approximate principal and interest payments:
- Price cut to $290,000 at 6.25 percent: about $1,784 per month.
- 2-1 buydown at $300,000:
- Year 1 at about 4.25 percent: about $1,474 per month.
- Year 2 at about 5.25 percent: about $1,655 per month.
- Years 3–30 at 6.25 percent: about $1,845 per month.
Approximate seller cost comparison for this scenario:
- $10,000 price cut costs the seller $10,000.
- 2-1 buydown subsidy equals the payment difference vs the note rate for years 1 and 2. In this example, that totals about $6,700.
What this means:
- Buyers get the lowest early payments from a temporary buydown, which can be attractive if they plan to refinance or move within a few years.
- A price cut saves buyers for the entire term and can lower loan-to-value, which may help with mortgage insurance and underwriting.
- For sellers, a buydown may cost less out of pocket than a comparable price cut while keeping the contract price higher.
Appraisal and underwriting realities
- A price cut lowers the contract price, which can make it easier for the appraisal to match. That can reduce the risk of renegotiation due to a low appraisal.
- A buydown does not change the contract price. The appraisal still needs to support the price based on comparable sales. If the appraisal falls short, you and the buyer must work out a solution within concession limits or the buyer brings more cash.
- Lenders must document the source of buydown funds. Temporary buydowns often require an escrow account and a written schedule for how funds will be applied.
Seller concession limits to know
Seller-paid buydowns and closing cost credits are limited by loan program and buyer down payment. Typical industry ranges that lenders use include:
- Conventional loans: lower down payments often allow smaller concessions, commonly around 3 percent. Mid-range down payments often allow up to around 6 percent. Higher down payments may allow up to around 9 percent.
- FHA: concessions are commonly capped at 6 percent of the sales price.
- VA: concessions are allowed with specific rules. The lender will confirm what is permitted.
Always confirm the buyer’s exact program limits and how the lender will qualify the borrower, since some loans qualify at the note rate even when a temporary buydown is used.
When a buydown helps most in Florence
- Inventory is tight and homes are moving quickly. Keeping price while improving monthly affordability can draw more traffic and offers.
- Your comps support the list price. If the appraisal climate is solid at your price point, a buydown can make your home stand out without changing price filters.
- Likely buyers are payment sensitive. First-time buyers, commuters to Cincinnati, and transferees tied to CVG-area employers often focus on monthly cash flow.
- Your expected buyer may move or refinance within a few years. A temporary buydown gives them breathing room upfront.
When a price cut makes better sense
- Appraisal risk is high. If comparable sales do not support your current list price, a price cut can prevent delays or fall-throughs.
- Days on market are climbing. In a slower segment, a visible price improvement can boost online search visibility and showings.
- Your goal is certainty of sale. A price cut can simplify underwriting, reduce LTV, and remove some friction points.
Local market factors to check first
Before choosing, have your agent pull Florence and Boone County data for your price band:
- Months of inventory and recent trend in your neighborhood.
- Days on market changes over the last 3–6 months.
- Appraisal climate, including recent appraisal gap renegotiations in similar sales.
- Competing listings and what incentives they are offering.
- Typical buyer profile at your price point. Payment sensitivity matters when deciding between buydown and price cut.
A simple decision path
Market pressure. Low inventory and quick sales favor buydowns. Slower segments and cautious buyers favor price cuts.
Appraisal support. Weak comps point to a price cut. Strong comps open the door to a buydown.
Buyer qualification. A temporary buydown can ease early payments. A price cut lowers LTV and may help with mortgage insurance.
Seller net. Compare exact dollars: your net after a price reduction vs your cost to fund a buydown. In many cases, a 2-1 buydown costs less than a similar headline price cut.
Time horizon. Short-term buyer plans favor temporary buydowns. Long-term holds favor permanent savings from a lower price or a permanent buydown.
Tax and contract details. Discuss potential tax treatment of points or concessions with a tax professional. Confirm program limits and documentation with the lender.
Seller checklist for Florence, KY
- Ask the buyer’s lender for two written scenarios: payment and qualification at your current price with a buydown, and at a reduced price without one. Confirm how they will qualify the borrower.
- Request a clear cost estimate for the buydown. Get the amount needed, who holds funds, and how disbursements work.
- Confirm concession limits for the buyer’s loan program and down payment.
- Review comps with your agent. If comps are thin, give more weight to a price adjustment.
- Align your marketing. Decide whether to promote a price reduction or advertise a seller-paid buydown or closing credit in the MLS remarks.
- Tighten contract language. If offering a buydown, specify the amount, the structure, and escrow details in writing.
How we guide Boone County sellers
You deserve a clear, numbers-first plan that fits your goals and the current micro-market. Our team pairs pricing expertise with mortgage know-how to model both paths for you, including projected buyer payments, appraisal strategy, and net proceeds. We coordinate with local lenders, title, and appraisers so you can move forward with confidence.
Ready to see which option wins for your home? Connect with the Lorms Home Team for a quick scenario analysis and Get Your Free Home Valuation.
FAQs
What is a mortgage rate buydown for Florence buyers?
- A buydown uses funds at closing to reduce the borrower’s interest rate, either temporarily or permanently, which lowers the monthly payment compared to the note rate.
How does a price cut help my Boone County sale?
- A price cut lowers the contract price, which reduces the loan amount and monthly payment, and can make it easier for the home to appraise at the agreed price.
Which saves me more as a seller, buydown or price cut?
- It depends on the structure and price point, but a temporary buydown often costs less than a comparable headline price cut while keeping the contract price higher.
Will a buydown solve an appraisal gap in Florence, KY?
- No, a buydown does not change the contract price, so the appraisal still must support that price based on comparable sales.
Are seller concessions for buydowns limited by loan program?
- Yes, loan programs set maximum seller concessions based on buyer equity, so your agent and the lender should confirm the exact limits before you commit.
