The interest rates are lowered by the seller of a home. He/she does it to sell a house and give the buyer a good deal, so he/she decides to purchase the home. The seller of the home pays the home mortgage loan company the difference that the lowered interest rate would cause. In this way, the mortgage company doesn't lose any money to lower the interest rate for the purchaser.
An example of a buy down would be a 2-1-1 buy down, which means that the sellers "buys down" the interest rate. He/she buys it down 2% the first year, 1% the second year, and 1% the third year. After that, the interest becomes at the home mortgage loan company or lender's doing.
