Builder-paid financing means the builder pays to lower your mortgage rate. You get a smaller monthly payment, and on a rental that usually means better cash flow and a stronger DSCR.
The Lineage site banner reads "As low as 6%, Builder-paid financing available." The program's terms beyond that line aren't public, so this article covers how buydowns work in general, what to ask about any of them, and how to tell whether one is worth more to you than a lower price.
A buydown helps when the price is fair and you know how long the lower rate lasts. It's a weaker deal when it covers for a high price or ends sooner than you planned.
What a rate buydown is
A lender will give you a lower rate if someone pays more upfront. That upfront payment is usually called discount points. According to the CFPB, one point equals 1% of the loan amount, and points "lower your interest rate, in exchange for paying more at closing."
In a builder-paid buydown, the builder covers that cost. The money goes to the lender at closing and your loan carries the lower rate. You never see the cash, only the smaller payment.
How much rate a dollar buys depends on the lender, the loan type, and the market. There's no fixed exchange rate, which is one more reason to compare full loan terms instead of the headline number.
Permanent and temporary buydowns behave differently
The two look alike on a flyer and play out very differently over the life of the loan.
Permanent buydown. The builder pays points to lower the note rate itself. The lower rate stays for the life of the loan, or until you refinance or sell.
Temporary buydown. The note rate doesn't change. Money set aside at closing covers part of your payment for the first year or two. In a 2-1 buydown, your payment is figured at 2 percentage points below the note rate in year one, 1 percentage point below in year two, and at the full rate from year three on. The subsidy generally sits in a separate custodial or escrow account and gets applied to each payment, so the lender still receives the full amount.
Rules depend on the loan type. Fannie Mae, for example, doesn't allow temporary buydowns on investment properties it buys, and it qualifies borrowers at the note rate, not the reduced one. DSCR loans aren't Fannie Mae loans, so their rules come from the lender. Lenders also cap how much a builder or seller can contribute toward your loan costs, and some DSCR programs don't allow temporary buydowns at all. One published DSCR guide bars them and counts any seller contribution above 3% of the price against the loan. Ask which kind of buydown you're getting and which rate the lender uses to qualify the loan.
Why builders offer it in place of a price cut
A price cut is visible. It resets the comparable sales appraisers rely on and can upset the people who paid more last month. Kiplinger notes that builders often prefer incentives because a cut "can upset previous buyers, hurt appraisals and reset neighborhood comps."
A buydown can also cost the builder less. A 2023 AEI Housing Center analysis published in HousingWire found that, on its example, a one-point buydown lowered the payment about as much as a price cut three times as costly. That's a good trade for the builder, and it can be a good one for you if the price was fair to begin with.
What to check before you count on it
How long the lower rate lasts. A permanent buydown and a 2-1 buydown can advertise the same starting rate. Ask for the rate and payment in year one, year three, and year ten.
The price you pay. A buydown's cost can be folded into the price. Compare the property with recent sales of similar rentals nearby. If you'd pass on it at the full rate, the buydown isn't a reason to buy. Our guide to evaluating a rental property covers what to look at.
What happens at resale or refinance. A permanent buydown belongs to your loan, not the property, so the lower rate goes away when you refinance or sell. A temporary buydown's unused subsidy is handled under your loan's terms, so ask.
Cash flow at the full rate. Kiplinger calls any deal that only works if you refinance quickly a red flag. Run the numbers at the rate you'll pay after a temporary buydown ends.
Build my plan to see how the rate changes a 10-year projection.
How a lower rate changes DSCR and cash flow
This is an illustration, not a quote. Picture a newly built rental bought from its builder for $300,000 with 20% down, so a $240,000 loan, $2,400 a month in rent, and $400 a month in taxes and insurance. The property and every rate below are made up, with round numbers picked to show the mechanics. None of them is a rate you should expect or the terms of any Lineage program.
| Scenario (interest-only, illustrative) | Rate | Loan payment | Total payment | Rent ÷ your out-of-pocket payment |
|---|---|---|---|---|
| No buydown | 7.5% | $1,500 | $1,900 | 1.26 |
| Permanent buydown | 7.0% | $1,400 | $1,800 | 1.33 |
| 2-1 buydown, year 1 | 5.5% | $1,100 | $1,500 | 1.60 |
| 2-1 buydown, year 2 | 6.5% | $1,300 | $1,700 | 1.41 |
| 2-1 buydown, year 3 on | 7.5% | $1,500 | $1,900 | 1.26 |
In the 2-1 rows the lender's DSCR is still figured at the 7.5% note rate, 1.26, because the lender receives the full payment. Lowering the rate by half a percentage point in this example saves $100 a month for as long as you keep the loan. The temporary buydown saves far more in year one and nothing from year three on. The permanent one helps the long-run math, and the temporary one helps the first two years. Test your own numbers with the DSCR loan calculator, and read more about DSCR loan rates.
This is an illustrative example, not a loan offer or rate quote. Actual rates, terms, and eligibility come from the lender and vary by property and borrower. This is not investment advice.
When you're ready to run a real property, build my plan, or talk to a consultant about builder-paid financing on a property you're considering.
Frequently asked questions
It depends on how long you'll keep the loan. A buydown lowers your payment, while a price cut lowers your loan and your cash to close. If you expect to refinance soon, the lower price is the benefit that sticks.
It can, since DSCR compares rent to the payment. Whether the lender qualifies you at the reduced rate or the full note rate is the lender's call, so ask.
The lower rate is part of the loan you're replacing, so it ends. The new loan gets whatever rate the market and your profile support at that point.
The public line is the banner: "As low as 6%, Builder-paid financing available." That's an advertised floor, not a quote, and it depends on a builder paying for the buydown. The rate and terms on a given property come from the lender. Start on the lending page and ask a consultant for the specifics.