Mortgages & Creative Financing

The Seller Buy Down Strategy: A Clever Financing Trick That Nobody Uses

Expertise: Mortgages & Creative Financing
12 Articles Written

There are so many different ways to invest in real estate. You know that, and I know that.

I'm in the residential finance world so the types of deals that I see are usually the types of deals in which there are Realtors involved. When Realtors are involved, properties are typically listed on the local MLS by the listing agent, and a selling agent represents the buyer. Most deals structured in this fashion are owner-occupied purchases, but there are still plenty of deals for investors out there, and they happen all of the time.

Today, I want to give you an example of a purchase strategy that is sometimes used by the best, most creative selling agents in conjunction with mortgage professionals who think outside the box. This strategy is generally used for owner occupied purchases. I’ve seen it used only one time by a selling agent who was representing a buyer for the purchase of an investment property.

(Side note: I think that it could be applied to traditional financing investor deals much more so than it currently is.)

What is the Seller Buy Down Strategy?

The selling agent needs to be top notch and on top of their game in order for this strategy to work. The selling agent must be a master negotiator to make this special strategy a reality for the buyer.

Related: Personal Properties: Creative Financing for the Real Estate Newbie

The special strategy works great for buyer’s markets — markets in which there are more sellers than buyers. That is to say that there is more supply than there is demand. That is NOT to say that it wouldn’t work in a seller’s market, it’s just harder. A buyer’s market works best because buyers typically have the negotiating leverage. A seller may only get one offer on their property, and it may take a long time to get that one offer.

So, without further ado, here are the meat and potatoes of this special strategy. It’s called the Seller Buy Down, or SBD for short.

The whole idea for the SBD is to get money back from the seller to permanently buy down the interest rate.  Most agents will try to negotiate to get money back from the seller in terms of recurring or non-recurring closing costs, but most don’t try to get the money to actually buy down the interest rate. Keep in mind that an agent should get as much back as humanly possible to help the buyer get in the property.

The majority of agents and mortgage professionals will distribute the seller funds to underwriting costs, escrow fees, and loan fees…not many of them think to permanently buy down the interest rate on the loan which significantly reduce the monthly mortgage payment as well as turn non-cash flow into cash-flow.

A Look at the Numbers

Let’s take a look at the numbers for a seller buy down, and then I’ll explain some of the nuances and benefits for everyone involved. In this example, we’re assuming the buyer to be putting in an offer to purchase a $300,000 house. The property has been on the market for a while, but the seller may not be willing to budge on the asking price (or maybe they can’t because they’ll break even with at this price).

The investor (buyer) has $60,000 to put down on the property, and this is the only property on the market worth buying to turn around and rent. The trouble is that a low ball offer would work, but it’s not likely the seller will lower the asking price.

The interest rate that the buyer will get with no SBD is 4.0%. If the selling agent is able to negotiate just $10,000 toward the SBD, then the interest rate will be bought down to 3.25% on the 30 year fixed mortgage.

Full Asking Price Offer

Low Ball Offer

Full Price Offer w/ SBD of $10,000

Purchase Price

$300,000 $275,000 $300,000

Down Payment

$60,000 $55,000


Loan Amount

$240,000 $220,000


Interest Rate

4.0% 4.0%


Monthly Payment

$1145 $1050





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Take a look at those numbers closely. As a buyer, you always want to get the lowest price possible, but that’s not always the case. As stated above in this example, the seller just cannot lower the price to the point where you can get in the deal. So what do you do? You do the SBD. As it turns out in this example, the benefits are many for everyone involved:

  • The seller is able to get full asking price for the property. Even though the net price they will get is $290,000, this actually helped the buyer qualify for more money to get into the property by reducing the interest rate. They essentially spent $10,000 to save $15,000 — and saved the deal.
  • The buyer is able to use the seller-paid closing costs to buy down the interest rate to 3.25%. Instead of a monthly payment of $1,145 per month, the buyer saves over $100 per month because of the rate buy down, even though they came in at full asking price. This SBD strategy could turn the deal from something that doesn’t cash flow, to one that does.
  • The listing agent is happy because they brought in a full price offer. The listing agent gets their commission based on the $300,000 and can put a couple of extra dollars into their pocket.
  • The selling agent is also happy because again, the actual price is $300,000, and they too get a slightly higher commission because they put the deal together.

In the end, the whole reason this borderline deal works is because of the cost of money. The lower the interest rate, the less one is going to pay on the same amount of money.

Related: When the Bank Cut Me Off, I Had to Get Creative With Financing: Here’s What I Learned

How to Make it Happen

Here are the steps that I would take in order to make this happen for you as a buyer of residential real estate in the investment capacity:

  1. Find a mortgage professional in your area. Let them know that your Realtor will be working the Seller Buy Down strategy. If they don’t know the term right off the bat, find a different professional. Most outside-the-box thinking mortgage professionals should know and understand how the SBD works.
  2. Get pre-approved to purchase the property with traditional bank financing. See my article on how to get pre-approved and what to expect.
  3. Find a selling agent (buyer’s agent) who “gets it.” No, seriously. You need an agent who gets what you're trying to accomplish. A math-savvy Realtor or maybe a former financial professional would be a great place to start. You also need one who's a master negotiator so check references to make sure they're good to go.
  4. Find a property where you can make the numbers works. Again, in a buyer’s market, this strategy works like a charm. In particular, look for properties that have been listed for an extended period of time. These are the types of properties where you can negotiate. Combine a low ball price WITH the SBD and you’ve got a smoking hot property to make the numbers work.

Finally, make some offers using this strategy. Use it for your primary residence, your vacation property or second home, and definitely use it for your investment properties. After all, the worst the seller can say is no.

Have you ever used the Seller Buy Down strategy? If not, why?

Submit your questions and comments below.

Jeff Trevarthen is a mortgage advisor at New American Funding, a direct lender in 48 states across the US. With 12+ years in real estate finance, Jeff is an expert at coming up with creative loan solutions for all types of residential real estate loans.

    Jim Gramata Real Estate Broker from Chicago, IL
    Replied over 4 years ago
    Great post Jeff. I agree this strategy is used fewer times than it should. I use it all the time with both listings and buyers. The main idea is to stress the monthly cost of the home not the price of the home (assuming it is not a cash deal) and the numbers can work with this method for both sides. For sellers who won’t take any less than their bottom line and for buyers who want to get the best price possible or meet their monthly nut goals. I have also found it more effective on lower price properties in my area ($1M+ homes the numbers don’t work). With 80LTV we can get up to 6% back as seller credits and 90LTV allows 3% back towards closing costs and rate buy downs . The BIG and CRITICAL variable i didn’t see in your post is that is has to appraise for the higher purchase price amount. In your scenario you’d need to get all $300k value from an appraiser otherwise the whole strategy can fall apart. Brokers have a Plan B if that happens!
    Jeff Trevarthen Lender from San Jose, CA
    Replied over 4 years ago
    Thanks for the comment Jim. You’re totally right about the appraisals. It has to appraise in order to make it work, but as you know, that’s with all types of purchases using bank loans, not just seller buy downs.
    Matt Yogerst Investor from Slinger, Wisconsin
    Replied over 4 years ago
    All fine and dandy, but what if the buyer doesnt plan on being there 30yrs? if they only have a 5-10yr holding plan, then they are not coming out ahead since they would only be saving roughly 1200/yr in your scenario. That buyer would then be in a tighter spot in their resale numbers… It does work, and I have investors that do it w/me as their buyer agent. But typically if investors are using strategy they will want bigger difference in monthly amount to make up higher PP within 5yrs.
    Jeff Trevarthen Lender from San Jose, CA
    Replied over 4 years ago
    Would you take a $100 less payment every month because you thought outside the box to make a deal out of a tough situation? I know I would. You don’t have to use a 30 year fixed loan either. I would most likely use a 5/1 ARM or 7/1 ARM to get the lowest payment possible.
    Aaron T. Developer from Tampa, FL
    Replied over 4 years ago
    What does it cost to buy down interest? is there a formula or ratio…..or is it all bank specific? If i wanted to buy back 1 point or 1.5 points? Is there a limit or diminishing returns to buying back? when do you not want to do this? if you are holding it for 5-7 years? does this work for all conventional or VA loans? in know its a lot of questions, but being armed with the right info can help make better decisions.
    Jeff Trevarthen Lender from San Jose, CA
    Replied over 4 years ago
    Hi Aaron…Thanks for the comment. It is bank specific. They all do their pricing differently and it’s really just the pricing of the day. Most lenders have a floor as to how low you can go on the interest rate…typically it’s 1-2% below par pricing, but again, that varies by lender. You can use it on all purchase loans (but I’ve never seen it done with a VA loan).
    Page Huyette Real Estate Broker from Bozeman, Montana
    Replied over 4 years ago
    In your example you state that perhaps the seller needs full price to break even, yet you then state “The seller is able to get full asking price for the property. Even though the net price they will get is $290,000.” This means they are not getting full asking price, only on paper. I don’t see how this benefits the seller needing the full price, if they cannot sell for less? Can you elaborate?
    Sharon Tzib from Cypress, TX
    Replied over 4 years ago
    Thank you for asking this question – I was wondering the same thing.
    Emil Ayoub from San Diego, California
    Replied over 4 years ago
    Jeff, I’m getting $1,107 for the payment at $290k purchase and 4% interest. Yes it’s still $63 more than with the SBD, but you didn’t account for the fact that with the SBD the buyer will need to put an extra $2,000 down and will have an additional $8,000 added to his loan since it’s based on a $300k price. Also, property taxes will be higher. So I don’t see how this is worth it.
    Jeff Trevarthen Lender from San Jose, CA
    Replied over 4 years ago
    I’m still getting $1098/month. I’ve accounted for the fact that the buyer will put down $60,000 no matter what. So no extra money to put down either way (low ball offer or seller buy down). As you know, in California, the $10,000 difference between $290k and $300k, only leads to a difference of $10 in property taxes. Although I didn’t account for taxes and insurance in this example, $10 is almost negligible.
    Emil Ayoub from San Diego, California
    Replied over 4 years ago
    So then the buyer is essentially borrowing an additional $10,000 to lower his total payment $44/month? I still don’t see why anyone would want to do that.
    Jeff Trevarthen Lender from San Jose, CA
    Replied over 4 years ago
    You caught me! I didn’t do a good job of going back and editing the post, so it was not intentional. I see your point. Let’s assume there is just a little flexibility in the bottom line price that the seller could take. Let’s say it’s $290,000. Here’s what the numbers would look like if you offered $290,000….interest rate of 4.0%….payment of $1098/month. As you can see, this is more than the payment than if the SBD was use. The point being, the lower interest rate, helps more than the small price reduction. Hope that helps. 🙂
    Page Huyette Real Estate Broker from Bozeman, Montana
    Replied over 4 years ago
    The lower interest rate helps the buyer in this case, but not the seller. I think this is a very creative solution, and love your thinking, but it would only work for a distressed or stale property, and not always in that case if the seller is also under pressure to sell for a fixed amount (which is often why these properties are overpriced and sit). Regardless, thanks for the example and sharing your wisdom!
    Angie Menegay
    Replied over 4 years ago
    How is this different from the typical scenario where the buyer buys down the interest rate (with points), and the seller offers some cash back for closing costs, which do cover these points?
    Jeff Trevarthen Lender from San Jose, CA
    Replied over 4 years ago
    It’s not that different at all. In theory, it’s the same concept. However, I’ve never known a seller that offered to give away money unless the buyer asked for it. 😉
    Chris T. Rental Property Investor from Charlotte, NC
    Replied over 4 years ago
    while I like your idea, it would take quite a few years for you to actually come out ahead from a total equity stand point when you consider the increase in down payment and larger initial loan principle. Where you can really increase your payback and come out ahead is using the SBD is to go from a 30 year fixed to a 20 or even 15 year fix. You probably couldn’t get to the same monthly payment but you can get close with far more of your payment going to paying down your larger initial principle. You would be coming out ahead in just a few years.
    Paula Diaz
    Replied over 4 years ago
    The seller would also have the benefit of writing it off at the end of the year as points paid by seller can be included with the seller’s allowable expenses from sale, making the adjusted basis a little higher and capital gains a little lower (if there is any involved). Every little bit helps!
    Sean Williams from Louisville, KY
    Replied over 4 years ago
    This is awesome and I will certainly incorporate this into my business. Thanks for the information, very helpful during negotiations!
    Marybeth K. Rental Property Investor from Chester, NJ
    Replied about 1 year ago
    As a seller how would you write this in a counter offer if you aren’t sure the rate that the buyer will have nor the cost to buy down? Would you just counter and say that you would be willing to pay 1 point to pay down their interest rate or something similar? Thanks!!!