Plenty of LA listings that would have drawn offers in the spring are sitting this fall. Freddie Mac's weekly survey put the average 30-year fixed rate at 7.32% on Oct. 22, the first decline after seven straight weekly increases. A year earlier, the average was 6.19%. Realtor.com calculated that the climb from 6.66% in late August to 7.4% on Oct. 8 cut buyers' purchasing power by 7.2%.
That is the setting for a tactic that has moved from new-home builders into resale listings: the seller-paid rate buydown. In Los Angeles, where the county median price is close to $1 million and a buyer with 20% down borrows around $800,000, a credit aimed at the buyer's rate can change the monthly payment far more than a price cut of the same size. This guide covers how buydowns work, what one costs on a typical LA County price point, and the lending rules that cap how much a seller can contribute.
Why buydowns are back in the conversation
Redfin's Oct. 12 report found that U.S. pending home sales sank to near a 12-year low, and that cancellations reached 14.5% of homes that went under contract, a record outside spring 2020. National Mortgage Professional, citing the same Redfin data, reported that Los Angeles pending sales fell 16% from a year earlier and that 60.5% of LA homes sold below their original asking price.
Redfin's Chen Zhao told sellers to "price realistically from the start," adding that "a rate buydown or covering closing costs can go a long way when buyers are stretched thin," in the same Redfin report.
Many sellers are already doing it. Yahoo Finance, citing Redfin data, reported that sellers gave concessions in more than 45% of September sales nationwide, the highest September share since at least 2020. Agents and lenders told the outlet that rate buydowns are among the most popular concessions, and nearly 1 in 5 sellers paired a credit with a price cut.
Locally, the California Association of Realtors reported that the LA County median price was $994,670 in September, up 1.2% from a year earlier, while closed sales fell 10.9%. We broke down that report in our September LA County sales recap.
Permanent and temporary buydowns
A seller credit can lower a buyer's rate in two ways.
Permanent buydown. The credit pays for discount points at closing. The Consumer Financial Protection Bureau explains that one point costs 1% of the loan amount, and that how much each point lowers the rate differs by lender and changes with the market. The lower rate lasts for the life of the loan, or until the buyer refinances or sells.
Temporary buydown. The most common version is a 2-1: the rate starts two percentage points below the note rate in year one, one point below in year two, and reaches the full note rate in year three. The seller's money sits in an account that covers the payment gap each month. Fannie Mae's temporary buydown rules set several limits:
- Fixed-rate loans on a principal residence or second home only, with no investment properties or cash-out refinances.
- A reduction of no more than 3 percentage points, rising by no more than 1 point a year, for no more than three years.
- A written buydown agreement, which is disclosed to the appraiser.
- The buyer must qualify at the full note rate, so a 2-1 eases early cash flow but does not stretch a buyer's approval.
If the loan is paid off during the buydown period, the remaining funds go toward the payoff or as the agreement directs, under the same Fannie Mae rules.
The math on a $1 million LA home
Here is a worked example using round numbers close to the LA County median. It covers principal and interest only, before property taxes and insurance, and real quotes will differ from the weekly average.
- Price: $1,000,000 with 20% down, for an $800,000 30-year fixed loan.
- Note rate: 7.32%, the Freddie Mac average. Monthly principal and interest is about $5,495.
- 2-1 buydown, year one at 5.32%: about $4,452 a month, or $1,043 less.
- 2-1 buydown, year two at 6.32%: about $4,962 a month, or $533 less.
- Year three onward: back to about $5,495.
Covering those two years of payment gaps costs about $18,900, or roughly 1.9% of the price. Lenders set the exact subsidy, so get their figure before quoting a number to buyers.
Now apply the same $18,900 as a price cut instead. The loan drops to about $784,900, and the payment falls by roughly $104 a month. The price cut lasts for the whole loan, but the 2-1 delivers about ten times more relief in the first year, when new owners are also paying for moving, furniture and repairs.
A permanent buydown sits between the two. Its cost depends on the lender's point pricing on the day the loan is locked, so ask for a written quote instead of estimating. For scale, Yahoo Finance's example of a $400,000 home with 20% down found that a $10,000 credit could buy the rate down to 6.75% and save about $135 a month for the life of the loan, compared with $70 a month from an equal price cut. The same Yahoo Finance report noted that sellers are often indifferent between the two, because a credit and a price cut reduce net proceeds by a similar amount.
How much a seller can contribute
Fannie Mae's interested party contribution limits depend on the loan-to-value ratio:
- Principal residence or second home with more than 90% LTV: 3% of value.
- 75.01% to 90% LTV: 6%.
- 75% LTV or less: 9%.
- Investment property: 2%.
The limit is figured on the lower of the sale price or the appraised value. Buydown funds count toward it, and seller money cannot be used for the down payment. Anything above the cap is treated as a sales concession and deducted from the price when the lender calculates the loan-to-value ratio. In the example above, 80% LTV allows up to $60,000 in contributions, so an $18,900 buydown fits comfortably.
Loan size matters in LA County. The FHFA set the 2026 baseline conforming limit at $832,750 and the high-cost ceiling at $1,249,125. C.A.R.'s financing guide lists Los Angeles County at the $1,249,125 ceiling. An $800,000 loan is a standard conforming loan, and a $900,000 loan with 10% down is a high-balance conforming loan that still follows the Fannie Mae rules. Loans above the ceiling are jumbo loans, and each lender sets its own concession and buydown terms. FHA and VA loans also have their own rules, so confirm the buyer's loan type before promising a structure.
Putting a buydown in your listing
A few practical steps help the credit actually close the deal:
- Price it before launch. Ask a lender for written 2-1 and permanent buydown quotes at the list price, so you know what a given credit buys.
- Advertise a dollar credit, not a rate. Federal Regulation Z advertising rules require an ad that states a rate to show the annual percentage rate. Naming a monthly payment triggers further disclosures. Wording like "$20,000 seller credit toward a rate buydown or closing costs" avoids most of that, and a lender can review any flyer that quotes payments.
- Keep it flexible. Let the buyer's lender decide whether the credit goes to a 2-1, permanent points or closing costs, within the contribution limits.
- Write it into the contract. Put the credit amount and its purpose in the purchase agreement so the lender, escrow and appraiser all see the same terms.
- Do not use it to rescue an overpriced listing. A credit still has to pass the appraisal, and Zhao's advice to price realistically from the start applies either way.
What to watch this week
Freddie Mac publishes its next weekly rate survey on Thursday, Oct. 29. Futures markets priced roughly an 85% chance that the Federal Reserve holds rates steady at its meeting this week, with December hike odds near 90%, according to the same Realtor.com analysis. Point pricing moves daily, so refresh any buydown quote before a counteroffer goes out.