High rates have you rethinking your plan to buy or sell in Florence? You are not alone. With median home values in the mid to high six hundreds, many buyers and sellers are using seller credits and rate buydowns to bridge the gap and keep deals moving. In this guide, you will learn what these tools are, how much you can use under different loans, and how to write them into your offer so they actually work. Let’s dive in.
Why seller credits matter in Florence
Florence sits in a price band where closing costs and first‑year payments can feel steep. Recent snapshots show Florence’s median sold price around the mid to high six hundreds, including a June 2025 median of $684,875 reported by RocketHomes. You can view a current Florence snapshot from RocketHomes for context on price trends and inventory.
When affordability is tight, seller-paid help can reduce your cash to close or your early monthly payment. Success depends on market leverage, appraisal results, and the limits set by your loan program.
What seller credits cover
A seller credit, also called a seller concession, is money the seller agrees to pay toward your costs at closing. That can include lender fees, title and escrow fees, prepaids like taxes and insurance, and discount points for a temporary or permanent buydown. Lenders track these amounts and count many of them toward program “interested party contribution” caps.
Some items that are common and customary in a market may be treated differently by the loan program. Always confirm with your lender how a planned credit will be counted. You can review Fannie Mae’s guidance on interested party contributions to see how caps work.
How much a seller can pay
Caps depend on your loan type and down payment. Most programs calculate the limit from the lower of the sale price or appraised value.
Conventional loans (Fannie Mae/Freddie Mac)
- Less than 10% down: up to 3% of price/value.
- 10% to 25% down: up to 6%.
- More than 25% down: up to 9%.
- Investment property: up to 2%. See Fannie Mae’s IPC table for details.
FHA loans
- Seller and other interested parties can contribute up to 6% of the lesser of the sales price or appraised value toward allowable costs. FHA rules are outlined in HUD guidance.
VA loans
- VA allows sellers to pay many buyer costs, and certain “concessions” are capped at 4% of the home’s reasonable value. Typical closing costs and customary discount points may be excluded, while items like temporary buydowns, payoff of debts, and the VA funding fee paid by the seller usually count toward the 4% category. Review the VA guidance on funding fees and closing costs.
USDA loans
- Many lenders follow a 6% seller concession guideline on USDA loans. See this USDA-focused overview for typical treatment.
Buydowns in plain English
A buydown lowers your interest rate by paying money up front.
Permanent points
You or the seller pay discount points to reduce the note rate for the life of the loan. This can lower your monthly payment long term. Points typically count toward seller contribution caps when the seller pays them.
Temporary buydowns
Common forms are 2‑1, 3‑2‑1, or 1‑0. Your rate is reduced for one to three years, then steps up to the full note rate. Sellers, builders, or lenders can fund the subsidy at closing. FHA requires you to qualify at the full note rate, not the temporary rate. Freddie Mac research shows these plans rose when rates spiked, but they do not change long‑term affordability unless you refinance or sell later. Learn more from this Freddie Mac analysis.
For definitions and plain-language examples, see this overview of mortgage rate buydowns.
Florence examples and numbers
To make this concrete, use a sample price of $675,000.
- Conventional with less than 10% down: 3% cap → up to $20,250 in seller-paid allowable items.
- Conventional with 10% to 25% down: 6% cap → up to $40,500.
- FHA: 6% cap → up to $40,500.
- VA: “Concessions” often capped at 4% → roughly $27,000 for items that count toward the VA concession cap. Many routine closing costs are outside this 4% cap, so verify with your lender.
Example 2‑1 temporary buydown on a 30‑year fixed:
- Price $675,000, 20% down → loan $540,000.
- Note rate 7.00%. A 2‑1 buydown would reduce the rate to 5.00% in year 1 and 6.00% in year 2.
- Approximate principal and interest payments:
- 7.00%: about $3,594 per month.
- 6.00%: about $3,239 per month.
- 5.00%: about $2,901 per month.
- Estimated subsidy the seller funds up front:
- Year 1 savings: about $693 per month × 12 = $8,316.
- Year 2 savings: about $355 per month × 12 = $4,260.
- Total subsidy ≈ $12,576.
Under a 6% cap, the seller could fund the buydown and still help with other closing costs. Under a 3% cap, the credit may need to cover closing costs first, leaving less room for a buydown.
How to put credits in your contract
- State a clear amount. Use a dollar figure or percentage and list allowed uses, for example: “Seller to credit up to $X toward buyer closing costs, prepaids, and/or discount points, including a temporary or permanent buydown as permitted by buyer’s loan program.”
- Name the priority. Decide whether the credit first reduces cash to close or funds discount points for a buydown, and state how any unused amount will be handled.
- Add appraisal protection. Since caps are based on the lower of price or appraised value, include an appraisal contingency or a plan for what happens if a low appraisal reduces allowable contributions.
- Get lender sign‑off early. Ask the lender in writing to confirm the maximum seller contribution, what counts toward the cap, and how a buydown will be documented on the closing statement.
Tips for buyers
- Get preapproved and ask your lender to model three scenarios: price reduction, seller credit to closing costs, and seller-funded buydown.
- Choose by goal. If you need cash relief at closing, prioritize a general credit. If you want ongoing payment relief, compare permanent points with a temporary buydown.
- Remember qualification rules. Programs like FHA and many conventional loans qualify you at the full note rate, so a temporary buydown helps cash flow but not your debt‑to‑income ratio.
- Watch the step-up. Know exactly when and how much your payment increases after the temporary period.
- Ask about taxes. IRS rules say seller‑paid points are treated as if you paid them, which can affect deductions and your home’s basis. Review IRS Publication 530 and consult a tax pro.
Tips for sellers
- Credits can beat a price cut. A targeted concession can solve a buyer’s pain point while protecting your headline price, which can help with comps and future appraisals.
- Mind the caps. Know the loan type your likely buyer will use and how much you can legally contribute.
- Coordinate with the lender. If you offer a buydown, confirm cost and documentation so there are no surprises at closing.
- Plan for appraisal risk. If price and concessions are tight, discuss backup plans with your agent.
Common pitfalls to avoid
- Exceeding program caps. If total concessions go over the limit, the excess may need to be reduced or reallocated.
- Counting on a low temporary payment. You will likely qualify at the full rate and your payment will step up after the buydown period.
- Overlooking the appraisal. A low value can shrink allowable credits because caps use the lower of price or appraised value.
- Vague contract language. Spell out the amount, allowed uses, and how unused funds are handled.
Ready to run the numbers?
If you want a custom side‑by‑side for your Florence purchase or sale, let’s map it out. With 25+ years in the Bitterroot Valley and a practical, negotiation‑first approach, we will help you pick the strategy that fits your goals and today’s market. Connect with Stacie Roberts to get started.
FAQs
What is a seller credit in a Montana home purchase?
- A seller credit is money the seller agrees to pay toward your allowable closing costs, prepaids, and discount points, subject to loan program limits and the lower of the sale price or appraised value.
How much can a seller pay on an FHA loan in Florence?
- FHA generally allows up to 6% of the lesser of the sales price or appraised value toward allowable costs, which can include discount points for a buydown.
Do temporary buydowns help me qualify for the mortgage?
- Usually no; most programs, including FHA and many conventional loans, qualify you at the full note rate, not the reduced temporary rate.
How is a 2‑1 buydown funded at closing?
- The buydown cost is the upfront subsidy that equals the payment savings in year 1 and year 2, paid into an escrow account at closing by the seller, builder, lender, or buyer, then applied to your monthly payments during the buydown period.
Do seller credits affect the appraisal in Florence?
- Credits do not change the appraiser’s opinion of value, but program caps are based on the lower of the sale price or appraised value, so a low appraisal can reduce the allowable credit.
Are seller-paid points tax-deductible for buyers?
- IRS guidance treats seller-paid points as if you paid them, which may allow a deduction if requirements are met and will reduce your home’s basis; discuss your situation with a tax professional.
