New‑Build Rate Buydowns In Indy: What To Watch

Are you seeing “2-1 buydown” banners on Indianapolis new builds and wondering if they really save you money? You are not alone. With rates higher than a few years ago, builders across Marion County are using buydowns to make monthly payments feel manageable. In this guide, you will learn how these incentives work, what they cost, how to compare them to permanent points, and how to decide if a buydown fits your plans. Let’s dive in.

Rate buydown basics

A rate buydown is money paid up front to lower your mortgage interest rate. You might see two versions:

• Temporary buydown. Your rate drops for a set period, then returns to the contract rate. Common formats include 2-1 or 3-2-1.
• Permanent buydown, or points. You pay points at closing to reduce the rate for the life of the loan.

Builders often fund temporary buydowns to boost affordability without cutting the list price. The funds typically sit in an escrow account and subsidize your payment during the buydown period.

How builder buydowns work in Indy

In Marion County, you will most often see 2-1 and 3-2-1 buydowns on new construction. Here is the idea:

• 2-1 buydown. Year 1 is 2 percentage points below the note rate, Year 2 is 1 point below, Year 3 and beyond return to the note rate.
• 3-2-1 buydown. Year 1 is 3 points below, Year 2 is 2 points below, Year 3 is 1 point below, then it returns to the note rate.

The builder typically deposits a lump sum into a subsidy account at closing. The lender then uses it to reduce your payment during the discounted period. The exact cost depends on the loan amount, the note rate, and the buydown schedule.

Cost, savings, and a simple example

Use this example to estimate orders of magnitude and compare options:

• Loan: $300,000, 30-year fixed
• Note rate: 6.00%
• Monthly principal and interest at 6.00%: about $1,798.65
• At 5.00%: about $1,610.46
• At 4.00%: about $1,432.25

With a 2-1 buydown, Year 1 is 4.00% and Year 2 is 5.00%.

• Year 1 savings: about $366 per month, roughly $4,397 for the year.
• Year 2 savings: about $188 per month, roughly $2,258 for the year.
• Total estimated subsidy for two years: about $6,655.

That ballpark is close to what the builder would fund up front to cover your reduced payments for the first two years.

Buydown vs points: what changes

Both approaches reduce payments, but the economics and time horizon differ.

• Temporary buydown. Lower upfront cost, larger savings in the early years, no long-term rate reduction after the buydown ends. Helpful if you expect to refinance or move before the buydown runs out.
• Permanent points. Higher upfront cost, but you lock in a lower rate for the life of the loan. As a rule of thumb, one point equals 1% of the loan amount, and often lowers the rate by about 0.25%, but results vary by lender and program.

In the example above, taking the note rate from 6.00% to 5.00% permanently might require several points. If one point cuts the rate by about 0.25%, you would need around four points to reduce the rate by 1.00%. On a $300,000 loan, that is about $12,000.

How to compare offers step by step

Use these steps to make an apples-to-apples comparison between a temporary buydown and paying points.

1. Get the note rate. Confirm the long-term rate after any permanent points you pay.
2. Get the buydown schedule. Ask for the exact format and the dollar amount the builder will fund.
3. Calculate payments. Compute monthly principal and interest for each buydown year and at the note rate, then find the monthly savings for each year.
4. Sum the subsidy. Total the savings across the buydown years. That is the minimum cost the builder must fund.
5. Price permanent points. Ask the lender how many points are needed to reach the same long-term rate reduction and multiply points by the loan amount.
6. Find breakeven. Divide any upfront cost you would pay by your monthly savings to estimate months to recoup.
7. Consider time horizon. If you plan to sell or refinance within a few years, a temporary buydown may fit. If you plan to stay long term, permanent points may produce more lifetime value.

Underwriting and seller concession limits

How a buydown affects qualifying can vary by lender and loan program.

• Qualifying rate. Many lenders qualify you at the note rate, not the discounted early-year rate. In that case, a temporary buydown helps cash flow but not your approval amount. Some lenders can qualify at the reduced payment if the buydown funds are escrowed and investor rules allow it. Confirm this in writing.
• Seller concessions. Builder-paid buydowns usually count as seller concessions. Conventional loans often cap concessions based on your down payment size. For example, when your down payment is under 10%, a 3% cap is common for many conforming loans, with higher caps for larger down payments. FHA, VA, and USDA have their own limits. Make sure the total of the buydown plus any other credits stays within program caps.

Disclosures, taxes, and lender choice

You should clearly document who pays for what and how it appears on your closing forms.

• Document the subsidy. Request the exact dollar amount the builder will pay, and how and when the lender will hold those funds.
• Closing Disclosure. Confirm that the buydown shows correctly as a seller credit or subsidy on your Closing Disclosure.
• Preferred lender. Builders may offer the incentive only if you use their preferred lender. Ask if you can receive the same dollar subsidy with another lender, then compare total cost.
• Tax treatment. Points can be deductible as interest if they meet IRS rules. When a builder pays points on your behalf, the treatment can be more complex. Speak with a tax professional about your situation.

Local Indianapolis tips for new builds

Builders in Indianapolis have leaned on buydowns more when rates are elevated. Incentives can be packaged with closing credits or upgrades, so measure the entire package, not only the buydown.

If you are using a conventional conforming loan, remember that the baseline conforming loan limit for single-family homes in 2024 was $726,200 for most counties. Current-year limits change, so confirm with your lender when you lock your loan.

In Marion County communities, two buyers with the same budget can see very different offers from different builders. Ask for the specifics in writing, then compare across properties you are considering.

Resale and long-term planning

Temporary buydowns do not raise appraised values. They help near-term affordability but do not change comparable sales. If you expect to keep the home for a long time, compare whether permanent points yield more lifetime interest savings. If you are likely to refinance or move within a few years, a temporary buydown can be a practical bridge while you watch the rate environment.

Quick checklist to protect your savings

• Get the note rate, buydown schedule, and the exact subsidy dollar amount in writing.
• Calculate year-by-year monthly savings and total them to confirm the subsidy size.
• Compare the subsidy to the cost of permanent points for the same long-term rate reduction.
• Run breakeven months and match it to your expected time in the home or until refinance.
• Confirm how the lender will underwrite your qualification: reduced payment or note rate.
• Check seller concession caps for your loan program and down payment.
• Verify that the subsidy appears correctly on your Closing Disclosure.
• Ask if the incentive requires a preferred lender and whether you can receive the same dollar credit with another lender.
• Discuss potential tax treatment of points with your tax advisor.

Putting it all together

A builder-funded buydown can be a smart tool when you treat it like a math problem. Start with the note rate and the exact subsidy dollars, compute the real payment savings, and match the choice to how long you plan to own the home. If the numbers line up with your goals, the buydown can reduce early cash flow stress without inflating your purchase price.

If you want a second set of eyes on a Marion County new-build proposal, you can get a clear, side-by-side analysis of buydown offers versus permanent points, including hold-period and breakeven scenarios. Request your personalized market consultation with Chaggar & White Realty to compare options and negotiate with confidence.

FAQs

Will a 2-1 buydown help me qualify for a bigger loan in Indianapolis?

• Not always. Many lenders qualify you at the full note rate, so the temporary reduction only improves cash flow. Some lenders may qualify at the reduced payment if the subsidy is escrowed and program rules allow it. Get the policy in writing.

Who typically pays for a builder buydown on new construction?

• Often the builder funds the temporary buydown as a seller concession, though buyers can also pay for a temporary or permanent buydown. All concessions must fit within your loan program’s limits.

Is a temporary buydown better than buying points for a home in Marion County?

• It depends on your time horizon. Temporary buydowns are lower upfront and strongest for near-term affordability. Permanent points can pay off if you will hold the mortgage long term and want lower lifetime interest costs.

How do I calculate the real value of a 2-1 buydown?

• Compute the monthly payment at the buydown rate each year and subtract it from the payment at the note rate. Sum those savings and compare them to the subsidy amount. For a precise comparison, you can discount future savings to present value.

Are buydowns common on Indianapolis new builds right now?

• They have been more common in periods of higher rates as builders try to maintain traffic without lowering list prices. The prevalence changes with market conditions and competition among subdivisions.

What should I ask the builder and lender before I sign?

• Ask for the exact subsidy dollar amount, the buydown schedule, whether a preferred lender is required, how the lender will underwrite your qualification, and how the subsidy will appear on your Closing Disclosure.

Could a builder buydown affect my appraisal or resale value?

• Temporary buydowns do not raise appraised value because appraisals are based on sales prices and comparable properties. Treat the buydown as an incentive that improves early cash flow, not long-term value.