Offer less? Or ask for a seller paid buy down? Which is better for you as a buyer?
When you are preparing to make an offer on a home it is good to know what your options are as a buyer, especially when your budget is tight and you would like to keep some of your money in the bank. It’s very common in a “buyers market” for buyers to offer less for a home than what it is currently listed for. But, does that make sense for you? Rather than offering less, would it make more sense for you to come up with a plan to lower your monthly payments and your cash required at the closing table? Many people don’t realize they have this option. Below you will see an example of two different 5% down scenarios. One is an offer of $485,000 with no seller paid closing costs. The second is a $500,000 offer with the seller paying $15,000 in closing costs including a permanent rate buy down.
| $485,000 price with No buy down | $500,000 price with Seller Paid Buy Down | ||
| Purchase Price | $485,000 | Purchase Price | $500,000 |
| Down Payment | $24,250 | Down Payment | $25,000 |
| 1st Mortgage Loan Amount | $388,000 | 1st Mortgage Loan Amount | 400,000 |
| 2nd Mortgage Loan Amount | $72,750 | 2nd Mortgage Loan Amount | $75,000 |
| 1st Mortgage Interest Rate | 6.250% | 1st Mortgage Interest Rate | 5.625% |
| Estimated APR (1st): | 6.404% | Estimated APR (1st): | 5.625% |
| 2nd Mortgage Interest Rate | 8.750% | 2nd Mortgage Interest Rate | 8.250% |
| Blended Interest Rate | 6.645% | Blended Interest Rate | 6.039% |
| 1st Mortgage P&I Payment | $2,388.98 | 1st Mortgage P&I Payment | $2,302.63 |
| 2nd Mortgage P&I Payment | $572.32 | 2nd Mortgage P&I Payment | $563.45 |
| Tax Payment | $375.00 | Tax Payment | $375.00 |
| Est. Home Insurance | $75.00 | Est. Home Insurance | $75.00 |
| Total Payment | $3,411.31 | Total Payment | $3,316.08 |
| Closing Costs | Closing Costs | ||
| Origination Points (1% points) | $3,880 | Origination Points (1% points) | $4,000 |
| Discount Points (2% points) | $8,000 | ||
| Title Insurance Premium | $694 | Title Insurance Premium | $694 |
| Escrow/Closing Fee> | $756 | Escrow/Closing Fee> | $756 |
| Appraisal Fee | $450 | Appraisal Fee | $450 |
| Credit Report | $10 | Credit Report | $10 |
| Tax Service Contract | $69 | Tax Service Contract | $69 |
| Flood Zone Certification | $16 | Flood Zone Certification | $16 |
| Processing Fee | $495 | Processing Fee | $495 |
| Recording Fee | $100 | Recording Fee | $100 |
| Total Closing Costs | $6,470 | Total Closing Costs | $14,590 |
| Prepaid Interest | Prepaid Interest | ||
| Interim Interest (15 days) | $1,010 | Interim Interest (15 days) | $938 |
| Property Taxes (6 months) | $2,250 | Property Taxes (6 months) | $2,250 |
| Ins. Reserves (2 months) | $150 | Ins. Reserves (2 months) | $150 |
| Insurance Premium | $900 | Insurance Premium | $900 |
| Total Pre-Paid Items | $4,310 | Total Pre-Paid Items | $4,238 |
| Settlement | Settlement | ||
| Down Payment | $24,250 | Down Payment | $25,000 |
| Closing Costs | $6,470 | Closing Costs | $14,590 |
| Prepaid Items | $4,310 | Prepaid Items | $4,238 |
| Earnest Money | $0 | Earnest Money | $0 |
| Seller Concessions | $0 | Seller Concessions | $-15,000 |
| Total Settlement Costs | $35,030 | Total Settlement Costs | $28,827 |
As you can see, the second offer would save you close to $100 per month and over $6,200 at closing. For many, this savings can make a big difference in the home they are able to buy. So, know your options when preparing to make an offer.
If you have questions about the example above or would like to know more about your options feel free to call me for a free consultation and let’s see how we can make home buying easier for you and your pocketbook. Visit my website at www.MaryanneCoffman.com
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