Feeling squeezed by today’s mortgage rates as you shop in Merrimack? You are not alone. Many local buyers are using rate buydowns to create a more manageable payment in the first years or for the life of the loan. In this guide, you will learn how temporary and permanent buydowns work, what they cost, when they make sense in Merrimack, and how to structure one in your offer. Let’s dive in.
Rate buydown basics
A mortgage rate buydown is a one-time payment at closing that lowers your interest rate for a set period or for the full term of the loan. The buydown funds are placed in a lender-managed account and used to reduce your monthly payment during the buydown period. After that period, your payment returns to the original note rate.
There are two common types:
- Temporary buydowns
- 2-1 buydown: rate is 2% lower in year 1 and 1% lower in year 2, then returns to the note rate.
- 1-0 or 1-1 buydown: rate is 1% lower for one or two years, then returns to the note rate.
- Permanent buydowns (discount points)
- You pay points at closing to reduce the rate for the life of the loan. One point usually equals 1% of the loan amount. The rate reduction per point varies by lender and market conditions. For a plain-English explainer, see the Consumer Financial Protection Bureau’s overview of discount points and lender credits.
For current rate context as you compare options, check the Freddie Mac Primary Mortgage Market Survey.
Cost and math: a quick example
Here is a hypothetical example to show how a 2-1 buydown might work for a Merrimack purchase. Exact figures depend on loan terms, taxes, and insurance.
- Purchase price: $450,000
- Down payment: 20% → loan amount $360,000
- 30-year fixed note rate (no buydown): 6.50%
- 2-1 buydown schedule: 4.50% in year 1, 5.50% in year 2, then 6.50% from year 3 on
Estimated monthly principal and interest:
- At 6.50%: about $2,276
- At 4.50%: about $1,823
- At 5.50%: about $2,044
Estimated savings and buydown cost:
- Year 1 savings: about $453 per month → about $5,439 total
- Year 2 savings: about $233 per month → about $2,791 total
- Approximate one-time cost for a 2-1 buydown: about $8,230 (sum of savings)
Permanent buydown example: Paying 2 points on a $360,000 loan equals $7,200 at closing. If that lowers the rate by 0.50%, compare your new payment to the original and calculate how many months it takes to break even. Match that break-even to how long you plan to own the home.
Merrimack use cases: when it fits
In Merrimack and nearby Hillsborough County towns, buydowns can be a useful tool when:
- You expect income to rise in 1 to 2 years and want lower initial payments.
- You need payment relief to ease the transition to homeownership while you settle in your commute to Manchester, Nashua, or northern Massachusetts.
- The seller prefers a concession that preserves the contract price, which can help with appraisal considerations.
- Market conditions favor buyers and sellers are offering credits instead of cutting list price. You can monitor local trends through New Hampshire Association of REALTORS market data.
Buydowns may be less helpful if:
- The lender requires you to qualify at the full note rate, so there is no qualifying benefit.
- You plan to sell or refinance before the buydown period ends.
- Paying permanent points creates more total savings over your planned ownership period than a temporary buydown.
Qualification and program limits
Underwriting rules vary. Some lenders qualify you at the higher note rate even if you use a temporary buydown. Others allow qualifying at a reduced rate or a set floor. Confirm in writing with your lender before you write an offer that depends on a buydown.
If the seller funds the buydown, it counts as a seller concession and must follow program limits and be documented in the contract and on closing documents. General guidance to review with your lender:
- FHA: seller contributions are typically capped at a percentage of the sales price. See HUD’s FHA Handbook 4000.1 for program rules.
- VA: the VA has defined rules for concessions and allowable fees. See the VA Lender’s Handbook for details.
- USDA: seller contributions are allowed within program limits. See the USDA Single Family Housing Guaranteed Loan Program.
- Conventional: limits vary by loan-to-value, occupancy, and investor guidelines. See the Fannie Mae Selling Guide and verify lender overlays.
Temporary vs. permanent: a quick comparison
Temporary buydown
- Pros: bigger payment relief upfront, useful if income will rise soon or if the seller is willing to fund it.
- Cons: payment steps up after the buydown period; may not help if you must qualify at the note rate.
Permanent buydown (points)
- Pros: lower rate for the life of the loan; potential long-term savings; can make sense if you plan to hold the loan for several years.
- Cons: higher upfront cost; break-even depends on how long you keep the mortgage and future refinance plans.
Steps to use a buydown in your offer
- Confirm lender policy early
- Ask if you will qualify at the buydown rate or the note rate and request that guidance in writing.
- Specify the structure in the contract
- Example: “Seller to fund a 2-1 buydown equal to $X, deposited into lender’s buydown escrow at closing.”
- Check program limits
- Ensure the seller credit complies with FHA, VA, USDA, or conventional limits and any lender overlays.
- Coordinate funding and forms
- Request the lender’s buydown escrow instructions or required addendum and attach it to the offer if needed.
- Review closing disclosures
- Verify that the buydown shows correctly as a seller credit and that the escrow amount is accurate.
- Confirm post-closing servicing
- Ask how the payment will adjust and when. Know who to contact if the step-up is different than expected.
Tax notes to discuss with a pro
Permanent points paid by the buyer may be deductible as mortgage interest if IRS conditions are met. Seller-paid points and temporary buydown funds are usually treated differently. Review the IRS’s guidance on home mortgage points and consult your tax advisor for your situation.
If you want a plain-language overview of points and closing costs, the CFPB’s discount points explainer is a helpful resource.
Don’t forget taxes and insurance in Merrimack
Your monthly payment includes principal and interest plus property taxes and homeowner’s insurance if escrowed. A buydown affects only the loan’s principal and interest portion. For local property tax context, visit the Merrimack Town Assessor. Build your budget with realistic estimates for taxes and insurance so you know your true monthly payment throughout and after the buydown period.
Common pitfalls to avoid
- Relying on a buydown to qualify without lender confirmation.
- Forgetting to include property taxes and insurance when testing affordability.
- Leaving buydown terms vague in the contract, which can cause closing delays.
- Exceeding seller concession limits or missing required lender forms.
Local guidance you can trust
If you are considering a buydown for a Merrimack home, you do not have to figure it out alone. We can help you compare temporary versus permanent options, coordinate the right language in your offer, and align the strategy with your long-term plans. We work closely with reputable lenders in Hillsborough County and keep your budget and comfort front and center.
Have questions or want to run the numbers on a specific home? Reach out to Greg & Krystal Sherwin for tailored guidance and a calm, step-by-step plan.
FAQs
What is a mortgage rate buydown for Merrimack buyers?
- A buydown is a one-time payment at closing that lowers your mortgage rate temporarily or permanently, reducing your monthly payment for a period or the life of the loan.
How does a 2-1 buydown change my payment?
- Your rate is typically 2% lower in year 1 and 1% lower in year 2, then it reverts to the note rate starting in year 3, which increases your payment at that time.
Can a Merrimack seller pay for my buydown?
- Often yes, but it counts as a seller concession and must follow FHA, VA, USDA, or conventional limits and be clearly documented in the purchase contract and closing disclosure.
How much does a 2-1 buydown usually cost?
- The cost is roughly the sum of your first two years of monthly savings; in the example above, that was about $8,230 on a $360,000 loan at a 6.50% note rate.
Do I qualify based on the reduced buydown payment?
- It depends on the lender and program; some qualify you at the full note rate while others allow a reduced qualifying rate, so ask your lender early and get it in writing.
Are points or temporary buydowns tax deductible?
- Buyer-paid points may be deductible if IRS rules are met, while seller-paid points and temporary buydowns are treated differently; review IRS guidance and consult your tax advisor.
Consumer Financial Protection Bureau discount points explainer
Freddie Mac Primary Mortgage Market Survey
USDA Single Family Housing Guaranteed Loan Program
