Should I take the builder's rate buydown or a lower price on a new home?

Numbers as of November 2, 2026 (Freddie Mac rate from October 29, 2026; NAHB October 2026 survey; my New Home Builds check of October 26, 2026). Updated monthly when new MIBOR numbers come out.

What's the difference between a 2-1 buydown and a permanent buydown?

A 2-1 buydown lowers your rate for two years and then ends; a permanent buydown lowers it for the whole loan. With a 2-1, the rate runs two points under your note rate in year one, one point under in year two, and at the full note rate from year three on. The builder pays the difference up front into an account that covers part of each payment. A permanent buydown uses the same kind of money to pay discount points, and the lower rate stays until you pay off the loan.

Think of a 2-1 as a two-year coupon on a subscription you've already agreed to keep. At month 25 the coupon is gone and you pay the full note-rate payment. And under Fannie Mae's rules, the lender qualifies you at the full note rate, so a temporary buydown doesn't help you get approved for more house. It only helps your budget for those first two years.

Which saves more, the buydown or the price cut?

The 2-1 saves the most in the first two years, and the price cut or a strong permanent buydown saves the most after that. Here's the same $400,000 home four ways. The price is close to the $399,990 median list price on my New Home Builds tracker (October 26, 2026 check), and I used $20,000 because it's 5% of the price.

Offer	Year 1	Year 2	Year 3 on
No incentive: $320,000 loan at 7.24%	$2,181	$2,181	$2,181
$20,000 off the price: $304,000 loan at 7.24%	$2,072	$2,072	$2,072
2-1 buydown, costs the builder about $7,540: $320,000 loan at 5.24%, 6.24%, then 7.24%	$1,765	$1,968	$2,181
Permanent buydown, example using the full $20,000: $320,000 loan at 6.25%	$1,970	$1,970	$1,970

My math: monthly principal and interest on a 30-year loan with 20% down. Taxes, insurance and any mortgage insurance are extra. 7.24% is Freddie Mac's national average for October 29, 2026, not a quote. The 6.25% row is an example; what $20,000 buys depends on the lender.

The payment is only half of it, because the price-cut buyer also puts $4,000 less down and starts out owing $16,000 less. When I add up the down payment, the payments and the balance still owed, here's how it comes out:

• Price cut vs. 2-1, after five years: the price-cut buyer is about $18,100 ahead, mostly because the builder spent $12,460 less. If the builder put that remainder toward the 2-1 buyer's closing costs (assuming they run that high), the gap falls to about $5,600 on paper, and to about $500 if you'd have put that cash against a 7.24% loan. So the real question with a "$20,000 incentive" is where the rest of the money goes.
• Price cut vs. permanent at 6.25%: the buydown payment is about $101 a month lower, but after seven years that buyer is still about $5,500 behind because of the bigger starting balance.
• The rate a permanent buydown has to reach to tie the $20,000 price cut: about 5.64% if you keep the loan five years, 6.01% for seven years and 6.28% for ten.

So the longer you'll stay, the better a permanent buydown looks. If you may move in a few years, the lower price usually wins. These break-evens assume you never refinance and they don't count what you could earn on the cash, so use them as a yardstick and run your own numbers in the mortgage calculator.

How do I tell what a builder's rate offer really costs?

Find out what kind of loan the advertised rate belongs to, and how long it lasts, before you compare it with anything. Lennar's promotion for greater Indianapolis contracts signed October 26 to November 1, 2026, which has now ended, is a good example: a 7/6 adjustable-rate mortgage at 4.5% with a 6.955% APR, on select homes, financed through Lennar Mortgage, plus up to $5,000 toward closing costs. That rate was fixed for seven years and then adjusted every six months. It may have been a good deal for the right buyer, but it wasn't the same product as a 30-year fixed, and the gap between the rate and the APR is your cue to ask why.

Here's what I'd ask for, in writing and on the same day:

1. The price with no incentive. Ruoff Mortgage's Cori Drudge suggests the same question, because an incentive can be built into the sales price. The answer tells you what the money is really worth.
2. A Loan Estimate from the builder's lender showing the note rate, the APR, the points, whether the rate is temporary or adjustable, and the year-three payment.
3. A Loan Estimate from an outside lender on the same price, with no incentive. In my experience, if you walk away from the builder's lender, you usually walk away from the credit, so the comparison has to include that.
4. The dollar amount of the incentive, and where every dollar goes: buydown, closing costs, upgrades. My page on new construction closing costs shows what's normally on the bill.

How much can a builder put toward my rate?

On a conventional Fannie Mae loan for a home you'll live in, the builder's money is capped at 3%, 6% or 9% of the price or appraised value, whichever is lower, depending on your down payment. The cost of a temporary or permanent buydown counts toward that cap. The cap is 3% if your loan is more than 90% of the value, 6% from just over 75% up to 90%, and 9% at 75% or less. Anything over the cap, or more than your closing costs, gets subtracted from the price for underwriting.

That's why the down payment matters here. With 20% down on $400,000, the cap is $24,000, so a $20,000 incentive is under it, as long as you have that much in points and closing costs to spend it on. With 5% down, the cap is $12,000: at the same rate, a 2-1 buydown on that $380,000 loan would cost about $8,950 and clear the cap, but $20,000 wouldn't. FHA and VA loans have their own limits, so have your lender confirm yours, and what counts as a closing cost, before you count on the money.

Should I count on refinancing when the 2-1 ends?

No. Buy the house only if you can carry the full year-three payment, $2,181 in my example, on your budget today. I don't forecast rates, and neither should your plan. Calling a 2-1 a bridge to a refinance only works if you've priced the other side of the bridge. A refinance comes with its own closing costs, and it only works if rates, your credit and the home's value all cooperate at once.

If you do pay the loan off early, Fannie Mae says unused buydown money gets credited toward the payoff or returned as the buydown agreement spells out. Read that agreement before closing, so you know whether the leftover comes back to you or your lender.

Do Indianapolis-area builders cut prices right now?

Some do, especially on homes already built, so it's worth asking for a price cut even when the offer on the table is a rate. Nationally, 43% of builders in NAHB's October 2026 survey said they cut prices, by an average of 6%, and 65% used sales incentives. On my tracker's October 26 check of builder websites across eight Central Indiana counties, 394 of the 903 homes listed were move-in ready, and 142 homes had a lower price than a week earlier (88 of them move-in ready), while 49 went up.

In my experience, the logic is simple: every recorded sale becomes the comp for the next one, so a builder would rather hand you a credit than change the number on the deed. That's why you'll often hear yes to a buydown before you hear yes to a price cut, and why a finished home sitting on the lot has more room than one that hasn't been started. My page on negotiating with a home builder covers what else they'll move on. Before you pick an incentive, make sure the contract price will hold up on appraisal too, because a low appraisal is your problem to solve whichever offer you took.

Sources

• Freddie Mac Primary Mortgage Market Survey: 30-year fixed 7.24%, week of Oct 29, 2026
• Fannie Mae Selling Guide B2-1.4-04, Temporary Interest Rate Buydowns (Aug 7, 2024): qualify at the note rate, up to 3 years, increases of no more than 1% a year, buydown funds at payoff
• Fannie Mae Selling Guide B3-4.1-02, Interested Party Contributions (May 7, 2025): 3%, 6%, 9% limits for a principal residence
• CFPB, "What are discount points?": how much a point lowers the rate depends on the lender, loan and market (reviewed Oct 19, 2023)
• HousingWire, NAHB October 2026 builder survey: 43% cut prices, 6% average cut, 65% used incentives (Oct 19, 2026)
• Lennar, Indianapolis promotion: 7/6 ARM 4.5% (6.955% APR), contracts signed 10/26/26 to 11/1/26, close by 11/30/26 (read Nov 2, 2026)
• Cori Drudge, Ruoff Mortgage, "Building a New Home in Indiana: What Buyers Need to Know About Builder Incentives" (Apr 29, 2026)
• Homes of Indiana New Home Builds tracker, builder websites checked Oct 26, 2026: 903 homes, 394 move-in ready, $399,990 median list price, 142 price cuts and 49 increases since Oct 19

I'm a Realtor, not a lender, lawyer or tax advisor. Numbers are the latest available on the dates shown and change; your loan officer, attorney or the county has the final word on your situation.