With the emergence of the foreclosure and short sale market, it has become a norm for buyers to enter into a negotiation with a seller on what might have been known as three or more years ago as a low ball offer. Rather than just dropping the sale price by $6,000 or $7,000, buyers can request for a seller buy down on their mortgage rate and in the end, depending on their financing goals, save a lot more money in the end.
Lets say the house is listed for $420,000. I’m going to give you three examples of this scenario. 1) traditional purchase at the listed price, 2) asking the seller to drop the price by 3%, and 3) asking the seller to give 3% of the current listed price back to the buyer for a 3% buy down.
TRADITIONAL MORTGAGE OPTION: If you buy a home at $420,000, and put 20% down, your mortgage payment at 6.375% would be $2,096.20 a month.
SELLER REDUCE LIST PRICE BY 3%: If you buy a home listed for $420,000 but have the seller reduce the price by 3% to $409,920, and put down 20%, your monthly payment at 6.375% is $2,045.89. Savings from the first option of buying traditional at listed price equals $50.31 a month.
SELLER CONTRIBUTES 3% OF ORIGINAL SALE PRICE TO BUYER FOR INTEREST RATE BUYDOWN: If you buy a home listed for $420,000 and have the seller contribute 3% of the price toward buying down the interest rate to 5.625%, and you put down 20%, your monthly payment would be $1,934.21. Savings from traditional purchase at listed price equals $161.99 a month.
Brad Lynch says
connect with me on Active Rain…lots of Seller Buydown talk there.
John Cannata says
Excellent example Brad. This is why a Homebuyer should talk with a Mortgage Professional to understand all of the options available to them. There is a much larger advantage buy lowering the rate, rather than the cost of the home.
Dave Grier says
Thanks for your time today on mortgage buy downs.
I will be pushing more purchase in the next week and move from this refi stuff. Such a pain!
Take care