01 / WHAT THESE FIGURES ARE
Illustrations for planning an incentive budget — not a quote.
The scenarios we publish exist to help a builder decide how much incentive to allocate, and in what structure. They are modeled from a published national survey average and the stated assumptions below. They are not tied to a specific borrower, a specific property, or a specific day's pricing.
These figures are estimates. They are not a rate quote, a rate lock, a commitment to lend, an offer to extend credit, or a guarantee of pricing, terms or availability.
Actual pricing is set by the secondary mortgage market and moves daily. It varies with credit score, loan-to-value, occupancy, loan purpose, loan amount, property type, debt-to-income, lock period and product. The rate a given concession actually buys on a given day may be materially different from what is modeled here. Only a written quote from an HFG loan officer reflects live pricing for a real file.
Where a figure depends on an assumption rather than a published number — most importantly the relationship between discount points and rate, in section 03 — that assumption is stated explicitly rather than buried in the arithmetic.
02 / DERIVING THE PAR RATE
Why the brief shows two different rates.
The headline rate we report is the Freddie Mac Primary Mortgage Market Survey (PMMS) weekly average, reported exactly as published. It is a survey statistic describing the market — it is not a rate any lender quotes.
Mortgage rates are quoted in one-eighth increments (6.750%, 6.875%, 7.000%). So every payment illustration is built on a par note rate: the published survey average rounded up to the next one-eighth.
par = ceiling( PMMS × 8 ) ÷ 8
Example: a 6.95% survey average yields a 7.000% par note rate.
Rounding is always upward, never to nearest. That is deliberate and it is conservative in the buyer's favor: an illustrated rate can never be better than the underlying arithmetic supports. This is also why the brief may show a survey average of 6.95% while every payment on the page is computed at 7.000%. The two numbers are not in conflict; they are measuring different things.
03 / PERMANENT RATE BUYDOWNS
How a concession becomes a lower note rate.
A permanent buydown uses the builder concession to purchase discount points, which reduce the note rate itself for the entire loan term. Unlike a temporary buydown, nothing is escrowed and nothing expires.
Step 1 — Convert the concession to points
One discount point equals 1% of the loan amount. The points a concession buys is simply the concession divided by the loan amount.
points = concession ÷ loan amount × 100
Example: $11,800 on a $393,775 loan = 2.997 points, stated as 3.00.
Step 2 — Convert points to a rate reduction
We model the reduction at approximately 0.250% (25 basis points) of rate for each discount point purchased.
This 25-basis-points-per-point ratio is a planning convention, not a live price.
The actual relationship between points and rate is set by the secondary market's daily pricing grid. It changes constantly and it is not linear — the cost of each additional eighth typically rises as you buy deeper. On any given day, the points required to reach a particular rate may be materially more or less than this model shows, and the difference is larger for deeper buydowns than shallow ones.
Use the modeled figure to size an incentive budget. Use a written quote to price a file.
Step 3 — Round to a quotable rate
The resulting rate is rounded up to the next one-eighth, for the same reason the par rate is.
Step 4 — The qualifying rate moves with it
Because a permanent buydown reduces the note rate itself, the buyer is underwritten and qualified at the bought-down rate. This is the material difference from a temporary buydown, and it is often worth more to a payment-constrained buyer than the payment reduction itself.
A permanent buydown is the one structure where quoting discount points is correct. Points are never quoted on a temporary buydown — see section 04.
04 / TEMPORARY BUYDOWNS
2-1, 3-2-1 and 1-0 structures.
A temporary buydown does not change the note rate and purchases no discount points. The note rate is the par rate from day one and for the entire 30-year term.
Instead, the builder deposits a lump sum into an escrowed subsidy account at closing. That account — not a lower rate — pays the difference between the reduced payment and the full payment during the buydown period. When the account is exhausted, the payment steps up to the note-rate payment and stays there.
The interest rate used to compute the payment is reduced by a whole percentage point per year of the structure: a 2-1 reduces it 2% in year one and 1% in year two; a 3-2-1 reduces it 3%, then 2%, then 1%.
Subsidy cost
The escrowed amount is the sum of the monthly payment differences across the buydown period, computed from the scheduled payments as rounded to the cent — because that is the basis on which the escrow account is actually funded and the figure that goes into a contract.
subsidy = Σ 12 × ( paymentpar − paymentyear n )
The qualifying rate does not move
The buyer is underwritten and qualified at the full note rate, not at the reduced first-year rate. A temporary buydown lowers the payment; it does not lower the rate the file is approved against. Any concession amount not consumed by the subsidy may be applied to other allowable closing costs, subject to the limits in section 09.
05 / THE PAYMENT CALCULATION
Standard amortization, principal and interest only.
M = P × i ÷ ( 1 − (1 + i)−n )
P = loan amount · i = annual rate ÷ 12 · n = 360 months
Loan amount is always derived as sales price less the buyer's cash down payment, and the same way in every leg of every comparison, so a stated concession always equals the modeled change in loan amount exactly.
Every payment figure we publish is principal and interest only. It excludes property taxes, homeowners insurance, mortgage insurance, HOA dues, and any other escrowed item. A buyer's actual total monthly payment will be higher, often materially so.
06 / PRICE-CUT COMPARISONS
Holding the buyer's cash constant.
When we compare a buydown against taking the same money off the sales price, the buyer's cash down payment is held constant in both legs. Only the price and the resulting loan amount change. This is the comparison a buyer actually faces; varying the down payment alongside the price makes the two legs incomparable.
The two structures behave differently over time, and the comparison should always be presented with that difference stated:
- A price cut is permanent. Its monthly saving is smaller but never ends.
- A temporary buydown expires. Its advantage is large at first, decays each year, and then reverses — the price cut's cumulative saving eventually overtakes the subsidy. Where that crossover falls is published alongside the comparison whenever a temporary structure is featured.
- A permanent buydown does not expire. Its ratio against a price cut does not decay, and there is no crossover month.
Which structure is better depends on how long the buyer keeps the loan, and a buyer should be shown both.
07 / ANNUAL PERCENTAGE RATE
When we publish an APR, and when we do not.
Under Regulation Z, mortgage insurance premiums are a finance charge and must be included in an APR. An APR computed without them would understate the true cost of credit.
Accordingly:
- Conventional financing at or below 80% loan-to-value carries no mortgage insurance. These scenarios display a computed APR.
- Conventional financing above 80% LTV carries private mortgage insurance. We do not publish an APR for these scenarios.
- FHA financing carries both upfront and annual mortgage insurance premiums. We do not publish an APR for these scenarios.
Where an APR is not published, HFG provides a scenario-specific APR with every written quote. Annual Percentage Rate is a computed disclosure and is not expressed in one-eighth increments.
08 / MORTGAGE INSURANCE
A real long-run difference between conventional and FHA.
Conventional private mortgage insurance is cancellable. Under the Homeowners Protection Act a borrower may request cancellation at 80% loan-to-value based on the original amortization schedule, and the servicer must terminate it automatically at 78%.
FHA annual mortgage insurance, at 3.5% down, is payable for the life of the loan and is not cancellable at 80% LTV. FHA also charges an upfront premium of 1.75% of the base loan amount, which may be paid in cash at closing or financed into the loan; financing it increases the amortizing balance and therefore every payment figure.
This is a genuine cost difference over the life of a loan and a buyer should see it in writing when comparing programs.
09 / INTERESTED-PARTY CONTRIBUTION LIMITS
What a builder is permitted to contribute.
Interested-party contribution limits are measured against the sales price, not the loan amount. A builder concession — whether it funds a buydown, closing costs, or both — counts against these limits.
| Program | Loan-to-value | Limit |
|---|
| Conventional, principal residence | Above 90% | 3% of sales price |
| Conventional, principal residence | 75.01% – 90% | 6% of sales price |
| Conventional, principal residence | 75% or below | 9% of sales price |
| FHA | Any | 6% of sales price |
| VA | Any | 4% of sales price (seller concessions) |
| USDA | Any | 6% of sales price |
A high-LTV conventional structure is constrained far more tightly than an FHA one at the same price. This is frequently the binding limit on how deep a conventional buydown can go, and it is checked on every scenario we publish.
10 / THIS WEEK'S ILLUSTRATION
Week 41 · FHA 2-1 temporary buydown.
| Item | Value |
|---|
| Sales price | $414,500 |
| Down payment | 3.5001% — $14,508 |
| Loan amount | $399,992 FHA, 30-year fixed |
| Loan-to-value | 96.4999% |
| Published survey average | 7.28% — Freddie Mac PMMS, week ending 10/01/2026 |
| Par note rate | 7.375% (survey average rounded up to the next eighth) |
| Builder concession | $12,435 (3% of price, rounded up to the next whole dollar) |
| Structure | 2-1 temporary buydown. The note rate stays 7.375% for all 360 payments. No discount points are purchased; the builder deposits the payment difference into an escrowed subsidy account at closing. |
| Year one | 5.375% — P&I $2,239.84 (reduction of $522.81 a month, $6,273.72 for the year) |
| Year two | 6.375% — P&I $2,495.43 (reduction of $267.22 a month, $3,206.64 for the year) |
| Year three onward | 7.375% note rate — P&I $2,762.65, the par payment |
| Escrowed subsidy | $9,480.36 in total, computed from the scheduled payments rounded to the cent and fully funded by the $12,435 concession |
| Qualifying rate | 7.375% — the note rate, not the year-one rate |
| Upfront mortgage insurance (UFMIP) | 1.75% of the base loan = $6,999.86, financed into a balance of $406,991.86. Does not apply to conventional financing. |
| Price-cut comparison | $12,435 off price, cash down held constant: $402,065 price, $387,557 loan at 7.375% par, P&I $2,676.76 — a $85.89 monthly saving. The price cut is permanent; the buydown expires after 24 months. Over the full 360 payments the price cut saves $30,920.40 against $9,480.36, and it overtakes the buydown in month 111. |
| Contribution limit | 6% of sales price at 96.4999% LTV = $24,870. The $12,435 concession leaves $12,435 of unused capacity. |
| APR | Not published — FHA annual mortgage insurance is a finance charge. Provided with written quote. |
Rates current as of 10/02/2026 and subject to change daily without notice. Payments are principal and interest only and exclude taxes, insurance, mortgage insurance and HOA dues.
11 / DATA SOURCES
Everything we publish is traceable.
The brief carries no proprietary or internal market data. Every market figure comes from a public source, with the as-of date stated next to it:
Weekly series are revised by their publishers. Initial jobless claims in particular are routinely revised in the week after first publication; we compare against the revised figure and say so when a revision has occurred.
Questions on any of this?
If a figure in the brief does not reproduce from these assumptions, we want to know. Your builder rep can walk through any scenario line by line, and can produce a written quote with live pricing for a specific buyer and property.
Talk to your builder rep →
