Are higher rates or closing costs keeping you on the sidelines in Temple? You are not alone. Many buyers are using buydowns and seller credits to lower their upfront costs and early payments without losing ground on price. In this guide, you will learn exactly what these tools are, how they work under common loan programs, what they look like with Temple prices, and how to structure them in your offer. Let’s dive in.
Buydowns and seller credits explained
A seller credit, sometimes called a seller concession, is money the seller contributes to help cover your closing costs, prepaids, or discount points that reduce your rate. In some cases, they can also fund a buydown. For a plain‑English overview of seller‑paid points and how they work, see this explanation of seller-paid points from Investopedia.
A buydown lowers your mortgage payment by prepaying interest. There are two common versions:
- Temporary buydown. Your rate is reduced for a set period, often 1 to 3 years. A 2-1 buydown lowers the rate by 2% in year 1 and 1% in year 2 before returning to the note rate in year 3. Get a quick refresher in this guide to 2-1 buydowns from NerdWallet.
- Permanent buydown (discount points). You or the seller pay points at closing to lower the rate for the life of the loan. One point typically equals 1% of the loan amount, and the rate reduction depends on lender pricing. Learn more about discount points from Investopedia.
Lenders disclose buydowns on the Loan Estimate and Closing Disclosure, and funds for temporary buydowns are usually held in a reserve that subsidizes early payments. Federal TILA and TRID rules govern these disclosures. See the consumer regulation supplement for disclosure guidance.
Loan program limits to know
Seller credits are limited by loan type and sometimes by down payment. Always confirm with your lender because limits and interpretations can change.
- FHA: Generally allows up to 6% of the sales price toward closing costs, discount points, and buydowns. These funds cannot cover your minimum required down payment. Review FHA guidance on seller-paid costs.
- VA: Seller concessions that are not ordinary closing costs are generally capped at 4% of the appraised value, while normal closing costs and market-rate discount points are treated separately. See the VA Lender’s Handbook.
- USDA: Many USDA lenders allow seller contributions up to 6% of the purchase price for closing costs. Confirm program specifics with your lender. Read this USDA loan overview for common practices.
- Conventional (Fannie/Freddie): Concession limits vary by down payment and occupancy, often 3%, 6%, or 9% tiers. Check the current Fannie Mae Interested Party Contributions guide and your lender’s overlays.
Temple numbers and savings
Temple’s market sits in the mid‑$200Ks. As of June 2025, Rocket’s market snapshot shows a median sold price around $279,945 for Temple. On a purchase around that price, a 6% seller credit could equal about $16,797, which can meaningfully reduce cash to close or fund a buydown.
Typical buyer closing costs often range from about 2% to 5% of the purchase price, though your actual number depends on your lender, loan type, and title fees. For a $280,000 purchase, that rough range is about $5,600 to $14,000. See this closing cost overview for buyers for context.
Planning for property taxes matters too. Bell County offers a residence homestead exemption and other programs that can help eligible homeowners. Review current exemption rules and how they interact with city and school taxes on the Bell County Appraisal District site.
Example: how a 2-1 buydown works
Below is a simple, illustrative example. Your exact numbers will differ.
- Note rate: 7.00% on a 30‑year fixed
- Temporary buydown: 2-1 buydown funded by the seller
- Example loan amount: $260,000
Payments are calculated as if the rate is lower during the buydown period:
- Year 1 payment at 5.00%: about $1,396 per month for principal and interest
- Year 2 payment at 6.00%: about $1,560 per month
- Year 3 and beyond at 7.00%: about $1,729 per month
The seller funds a reserve that covers the difference between the lower early payments and the full note-rate payment. In this example, the subsidy is roughly $333 per month in year 1 and $169 per month in year 2, or about $6,000 total. Lenders disclose the buydown and reserve treatment on your Loan Estimate and Closing Disclosure per TRID.
How to structure your offer
- Confirm your loan program and cap. Ask your lender how much the seller can contribute for your specific program and down payment. Start with FHA, VA, USDA, or Fannie Mae rules.
- Spell it out in the contract. State the exact credit amount and purpose, for example, “seller credit not to exceed X dollars toward buyer’s closing costs, discount points, and a 2-1 buydown.”
- Verify disclosures and timing. Ask your lender how the credit and any buydown will appear on the Loan Estimate and Closing Disclosure, and whether any reserve is required under TRID. Build in time for underwriting.
- Watch the appraisal and LTV. If credits exceed program caps, lenders may require a price adjustment or more buyer funds. Your lender will calculate using the lesser of price or appraised value where required.
Pros and cons for buyers and sellers
- Buyer advantages: Lower cash to close, lower early payments with a temporary buydown, and flexibility to refinance later if rates drop.
- Buyer watchouts: Payments step up after the buydown ends. Credits cannot replace required down payment on programs like FHA. Program caps may limit how much help you can receive.
- Seller advantages: A credit can help buyers qualify and keep your list price intact. It can move a stalled listing without a price cut.
- Seller watchouts: Credits must fit the loan program rules and can require extra lender review and time.
Questions to ask your lender and agent
- Which loan program am I using, and what is the exact seller credit limit for my scenario?
- Will a temporary buydown be treated as a financing concession, and how will any reserve be handled if I refinance early?
- How will the buydown and credits appear on my Loan Estimate and Closing Disclosure under TRID?
- If I am using VA, which items count toward the 4% concession cap versus normal closing costs?
- For FHA or USDA, will any part of the credit reduce the appraised or adjusted value for LTV calculations?
Common pitfalls to avoid
- Relying on verbal promises. Put every credit and buydown detail in the contract.
- Exceeding program caps. If you go over, lenders can treat the excess as a price reduction or require more cash from you.
- Payment shock. Make sure you can afford the note-rate payment, not just the reduced buydown payment.
Ready to buy in Temple?
If you want a clear plan for credits, buydowns, and pricing in Temple, our team is here to help you compare options, craft a strong offer, and keep the paperwork clean. Connect with Bolanos Realty to map your next steps.
FAQs
What is a seller credit in a Texas home purchase?
- A seller credit is money the seller contributes toward your closing costs, prepaids, or points that lower your rate. It can also fund a temporary buydown when allowed by your loan program. Learn more about seller-paid points from Investopedia.
How much can a seller pay on an FHA loan in Temple?
- FHA generally allows up to 6% of the sales price toward closing costs, discount points, and buydowns, but not toward your minimum down payment. Review FHA guidance on seller-paid costs.
Do VA loans allow seller‑funded buydowns and credits?
- Yes, but VA caps non‑ordinary “seller concessions” at 4% of the appraised value, while ordinary closing costs and market-rate points are separate. See the VA Lender’s Handbook for details.
Can seller credits cover all my closing costs on a USDA loan?
- Many USDA lenders allow up to 6% in seller contributions for closing costs, subject to program rules and appraisal. Confirm specifics with your lender and review common USDA practices.
What happens to unused temporary buydown funds if I refinance early?
- Lenders typically hold buydown funds in a reserve and apply them to early payments. Ask your lender how any leftover reserve is handled if you pay off or refinance the loan early under TRID rules.
