Does a Temporary Rate Buydown or Permanent Discount Points Save You More Money in Kennesaw, GA?
Neither one wins outright. A temporary buydown, like a 2-1 buydown, delivers a lower payment for a set period and then reverts to your full note rate, while permanent discount points cost more upfront but lower your rate for the entire loan term. On a $400,000 loan at a 7.00 percent note rate, a 2-1 buydown can run about $9,323 in total subsidy over its two-year term, while two permanent points cost $8,000 upfront and typically take four to six years to break even. Which one actually saves you more money depends almost entirely on how long you keep the loan, not on which option sounds like the better deal.
TL;DR
- You qualify for the loan based on the full note rate, not the bought-down payment, on both a temporary buydown and permanent points. Fannie Mae and Freddie Mac both require this.
- In an illustrative example on a $400,000, 30-year, 7.00 percent loan, a 2-1 buydown costs about $9,323 in total subsidy over two years, while two permanent points cost $8,000 upfront.
- Permanent points usually need four to six years to break even, and after that they often save you more than a temporary buydown would have, for as long as you keep the loan.
- Seller and lender contribution limits for buying down your rate differ by loan program: conventional limits run 2 to 9 percent depending on occupancy and loan-to-value, FHA caps total seller contributions at 6 percent of the sales price, and VA's 4 percent cap is measured against the appraised value, not the sales price or loan amount.
- On a VA purchase, a seller-funded temporary buydown counts against that 4 percent cap, but market-rate permanent points generally do not, a detail worth knowing if the seller is already using part of that cap elsewhere.
If you have been shopping for a home in Kennesaw or Acworth this fall, you have probably seen builders and sellers advertising a buydown instead of a price cut. It is a reasonable response to where rates sit right now, and it is a genuinely useful tool. The problem is that "a buydown" gets used as a catch-all term for two very different products, a temporary buydown and permanent discount points, and they do not cost the same thing or save you money the same way. Here is how to tell them apart and run the actual math before you decide which one is worth asking for.
How a Temporary Buydown Actually Works
A temporary buydown, most commonly structured as a 2-1 buydown, lowers your effective monthly payment for a limited window at the start of the loan, then steps back up to your full note rate.
- It is funded upfront, in cash, into a dedicated account. Under Fannie Mae's guidelines, the money can come from the lender or from an interested party to the sale, such as the seller or builder, and it has to sit in a custodial bank account that is kept separate from the lender's own corporate funds. It cannot be commingled.
- The buydown period is capped. Fannie Mae limits a temporary buydown to no more than three years, and the rate the borrower pays can only step up by one percentage point in each one-year interval. Freddie Mac's version carries a similar structure: the starting rate cannot be more than three percentage points below the note rate, and the subsidy period cannot run more than three years past your first payment.
- You qualify at your full note rate, not the discounted payment. This is the single most important thing to understand, and it is the piece most buyers get backwards. Fannie Mae is explicit that the lender has to qualify you based on the note rate, without any consideration of the lower, bought-down payment. If your income only supports the discounted payment, a temporary buydown will not get you approved.
- The funds are generally non-refundable once the loan is in place, except for what has not yet been applied if you pay off or refinance the loan before the buydown period ends. In that case, whatever is left in the account typically gets credited toward your payoff rather than handed back to you as cash.
Builders in Kennesaw and Acworth have leaned on this heavily in the current rate environment because it lets them advertise a lower payment without discounting the price of the home itself.
How Permanent Discount Points Work
Discount points are the more traditional way to buy down a rate, and the mechanics are simpler. You pay a fee at closing, usually calculated as a percentage of your loan amount, and in exchange your lender lowers your interest rate for the entire life of the loan. One point equals one percent of the loan amount.
There is no fixed, universal rule for exactly how much rate reduction one point buys. That ratio moves with market pricing and varies by lender, by loan program, and by the day you lock your rate. Treat any specific "0.25 percent per point" figure you see online as a rough generalization, not a guarantee, and ask your loan officer for your actual pricing before you commit to paying points.
Unlike a temporary buydown, points do not step back up after a year or two. If the rate is reduced from 7.00 percent to 6.50 percent by paying points, it stays at 6.50 percent for the full term of the loan, whether that is five more years or thirty.
The Real Cost Comparison in Kennesaw
Here is where the two options actually get compared head to head, using a hypothetical example to illustrate the math. These numbers are for illustration only and do not represent an actual loan offer.
Say you are financing $400,000 on a 30-year fixed loan at a 7.00 percent note rate. Your principal-and-interest payment at that rate is $2,661.21 a month.
Option 1: A 2-1 Buydown
- Year 1, your rate is reduced to 5.00 percent, bringing your payment to $2,147.29. The $513.92 monthly difference, $6,167.08 for the year, is funded by whoever is paying for the buydown.
- Year 2, your rate is reduced to 6.00 percent, bringing your payment to $2,398.20. The $263.01 monthly difference, $3,156.09 for the year, is also funded by the buydown.
- Year 3 and beyond, you are back to the full 7.00 percent note rate and the $2,661.21 payment.
- Total cost of the buydown over its two-year life: $9,323.18.
Option 2: Two Permanent Discount Points
- Two points on a $400,000 loan cost $8,000, paid at closing.
- In this hypothetical, that gets the rate down from 7.00 percent to 6.50 percent for the full term, bringing the payment to $2,528.27, a savings of $132.94 a month compared to the note rate.
- At that monthly savings, it takes about 60 months, or five years, to recoup the $8,000 upfront cost.
So which one actually costs less? It depends entirely on how long you keep the loan.
- If you sell or refinance within roughly the first two to three years, the temporary buydown gave you more real payment relief when you needed it, and the points would not have broken even yet.
- If you keep the loan past that five-year break-even point, the math flips. By year 7, the points option has netted about $3,167 more in savings than its upfront cost. By year 10, that net benefit grows to roughly $7,953. Hold the loan for 30 years, and the points option nets close to $39,858 more than its original cost, far outpacing anything a capped, two-year buydown could ever provide.
In other words, a temporary buydown is not automatically the cheaper option, and permanent points are not automatically the better long-term play either. It comes down to your own timeline, and that is exactly the kind of question worth running with real numbers before you choose.
Seller and Lender Contribution Limits by Loan Type
Whoever is funding your buydown, whether a builder, a seller, or you, has to stay inside the contribution limits for your specific loan program. These limits are not the same across FHA, VA, and conventional financing, and mixing them up is one of the more common and costly mistakes in a purchase contract.
Conventional loans (Fannie Mae and Freddie Mac). Fannie Mae's interested party contribution limits scale with your loan-to-value ratio and occupancy:
- Above 90 percent LTV on a primary residence or second home, the cap is 3 percent.
- Between 75.01 and 90 percent LTV, the cap is 6 percent.
- At 75 percent LTV or below, the cap is 9 percent.
- On an investment property, the cap is 2 percent regardless of LTV.
Contributions above these limits do not just disappear. They have to be treated as a reduction to the sales price, which can affect your appraisal and your loan amount.
FHA loans. FHA treats this differently. HUD caps total seller contributions, covering closing costs, prepaid items, discount points, and other financing concessions together, at 6 percent of the sales price. Go over that limit, and the loan amount gets reduced dollar for dollar.
VA loans. VA's rule is its own animal, and it is frequently explained incorrectly. The cap is 4 percent, but it is calculated against the home's VA-appraised value, called the Notice of Value, not the sales price and not your loan amount. Those three numbers only match up if the appraisal comes in exactly at the contract price.
What counts toward that 4 percent cap matters just as much as the number itself:
- A seller-funded temporary buydown, like a 2-1 buydown escrow, counts against the cap.
- The seller paying your VA funding fee counts against the cap.
- Market-rate permanent discount points generally do not count against the 4 percent cap, as long as they reflect prevailing market pricing rather than an inflated number designed to disguise another concession.
That last point is worth sitting with. On a VA contract where the seller is already using part of the 4 percent cap for other concessions, paying for permanent points instead of a temporary buydown can sometimes be the more flexible option, because it is not competing for the same capped dollars.
None of this is a reason to assume FHA, VA, and conventional rules are interchangeable. They are not, and using the wrong cap in a negotiation can blow up a deal or require last-minute renegotiation close to closing.
Running Your Own Numbers
Every one of these numbers above is hypothetical. Your actual rate, your actual points pricing, and your actual contribution limits depend on your loan program, your lender's pricing that day, your down payment, and how your specific transaction is structured. The honest answer to "which one should I choose" is that it depends on how long you plan to keep this home and this loan, and that is a conversation worth having before you are sitting at the closing table in Marietta trying to decide in the moment.
I walk buyers through this exact comparison before they write an offer, because the right answer changes depending on whether someone is planning to stay put for 30 years or is buying a starter home they expect to outgrow in three. If you are weighing a builder's buydown offer against asking for points instead, or trying to figure out what a seller's concession is actually worth to you, let's run your real numbers together. Schedule a 15-minute consultation and I will help you see exactly what each option costs and saves in your specific situation.
Frequently Asked Questions
Is a 2-1 buydown always cheaper than paying points on a loan in Kennesaw?
No. It depends on how long you keep the loan. In the illustrative example above, a 2-1 buydown cost more upfront in total subsidy than two permanent points, and the points option overtook it in long-term savings after about five years. Neither option is automatically the cheaper choice.
Do I qualify for my mortgage based on the lower, bought-down payment?
No. Fannie Mae and Freddie Mac both require lenders to qualify you using your full note rate, not the temporarily reduced payment from a 2-1 buydown. If your income only supports the lower payment, you will not be approved for the loan based on that lower number.
Who typically pays for a temporary buydown on a new construction home in Kennesaw or Acworth?
Builders frequently fund temporary buydowns as a purchase incentive instead of discounting the home's price, and resale sellers in Acworth and elsewhere in Cobb County have started offering them as a concession too. Either way, the funding has to stay inside the contribution limits for your specific loan program.
Does a seller-paid rate buydown count against the VA's seller concession limit?
A seller-funded temporary buydown does count against VA's 4 percent concession cap, which is calculated against the home's appraised value rather than the sales price. Market-rate permanent discount points generally do not count against that same cap, which can make points a more flexible option on a VA deal where the seller is already using part of the 4 percent elsewhere.
How much can a seller contribute toward my rate buydown on a conventional loan in Marietta?
It depends on your loan-to-value ratio and whether the home is your primary residence. Fannie Mae's limits run from 3 percent at loan-to-value ratios above 90 percent, up to 9 percent at 75 percent loan-to-value or below, with a flat 2 percent cap on investment properties. You can find a fuller breakdown of how these transactions work on Path2Sold.com.
Whether you are comparing builder incentives in Kennesaw or weighing a seller's concession on a resale, the right buydown strategy depends on your own timeline, not a one-size-fits-all rule. Schedule a 15-minute consultation and I will help you run the numbers before you sign anything.
Robert Masoudpour | REALTOR® | Associate Broker | Certified Residential Appraiser | Masoudpour Real Estate at Atlanta Communities | (678) 269-6680 | SOLD@Path2Sold.com | SellingKennesaw.com
