If you’re a home buyer who has an opportunity to submit an offer with $10,000 off the asking price or $10,000 in credits which would you choose?
Most buyers would and have choose $10,000 off of the asking price. While there is no right or wrong answer because both can save you money, the real solution can be found by asking which will maximize my $10,000 budget by saving me the most money? Consider this - Taking $10,000 off of the asking price of the home will decrease your mortgage about $30/month or $360 per year. Asking for $10,000 in credits can save you from $200-400/month or $2,400-$4,800/year. Much better, don't you agree?
So How Does This Work?
To take advantage of the $10,000 in credits, as the home buyer, you need to have a conversation with your real estate agent informing them that you want to ask for $10,000 in credits as part of your offer. (If you have a savvy agent (like me) the request would go unsaid and I would offer it first). Once the offer is accepted by the seller, you would tell your mortgage officer that you want to include the $10,000 in credits to buy down your interest rate using a 2-1 or 1-0 strategy. By buying down your rate, you are lowering your interest rate and mortgage. Asking for $10,000 off of the asking price, lowers the purchase price of the property and that only affects the mortgage.
A 2-1 buy down means you are buying down the interest rate for the first year only. The second year, your interest rate will increase by 1%, and another 1% the third year which should settle it back at the current interest rate. This is a great strategy for buyers with upfront cash that are concerned about the monthly mortgage payment. So I'll ask again... If you’re a home buyer with an opportunity for $10,000 off the asking price or $10,000 in credits, what are you choosing?
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