From the Desk of Cory Spielberg:

It is amazing how people can get so caught up in getting a bargain that they forget about the big picture!  Assuming that your down-payment was the same, which of the following options would you choose from this scenario that I heard from a friend of mine over at Cherry Creek Mortgage last year?

On one hand, the buyer could ask the seller to lower the overall price of their home.  In this example let’s say that the buyer is requesting a reduction from $225k to $218k.  While at first glance it may appear that the buyer will be saving $7k, it really isn’t that simple.

Alternatively, suppose that instead of reducing the price, the buyer suggested applying a portion of the difference toward buying down the interest rate.  As a result, the buyer would still be purchasing the home for $225k, but would be paying a much lower interest rate.  At the same time the seller would be receiving their full asking price, minus only a portion of the difference to buy down the rate.

In our first scenario where our buyer gets the price reduction, they would be making monthly payments of $1,563.34 at a rate of 5.25%.  In the second scenario, the seller’s contribution reduced the rate down to 4.25%, allowing the buyer to only make payments of $1,467.12 each month.  The second scenario would save the buyer $96.22 each month, which translates to a savings of $1,154.64 each year!

The savings and rate changes, of course, are dependent on a variety of factors including rate term, buyer contribution amount and credit rating, but clearly it’s a good idea to talk to your lender about this. This strategy can allow you to buy your dream house, while still allowing the seller to sell at a realistic price.

Whether you are looking to purchase a $225k house or a $1 million house this strategy can apply. Give us a call at 314-558-7555 or email us at info@upperendproperties.com to set up a meeting.

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