When buying a home, one of your goals is to negotiate with the seller for the best possible deal. This was a difficult task during the red-hot real estate market of the past few years when competing buyers bid up home prices in many parts of the country. But now, with the housing market cooling off, the opportunity to negotiate your homebuying costs is common again in many regions. If you’re looking for a better deal on your home purchase, here are four ways the home seller may be able to help.
The simplest and most common way a seller can reduce the cost of your home purchase is by lowering the sales price. In fact, outside of strong seller’s markets, price cuts are standard practice in most home purchase negotiations.
Closing costs credit
Another way a seller can contribute to your purchase is with a seller credit. These are funds that the seller provides toward your closing costs. Since your closing costs can add up to 2% to 5% of the sales price, this credit can make a noticeable difference. Mortgage lending rules place limits on seller credits, but generally, the larger your down payment, the larger the seller credit can be.
Rather than reduce the home’s price or your upfront costs, a home seller may also be able to reduce your monthly mortgage payments. To do this, the seller contributes funds to buy down your interest rate and therefore reduce your payments. A permanent buydown lowers your payments for the entire life of your loan, meaning the longer you keep the loan, the more benefit you will receive.
A popular variation of the buydown is the temporary buydown. This is when the seller concentrates the benefit of the buydown into the first one, two or three years of your loan. For example, a 2-1 buydown reduces your interest rate by two percentage points the first year and then one percentage point the second year, then your rate and payments return to normal for the remainder of the loan. Compared to a permanent buydown with the same seller contribution, a temporary buydown offers a bigger rate and payment reduction over the initial years, meaning you can recoup the full benefit in a shorter time span.
Temporary buydowns are particularly attractive in today’s higher interest rate environment. This is because many homebuyers expect mortgage rates to drop again over the coming years. A temporary buydown offers a way to secure lower rates and payments for the next one to three years, after which it may be possible to refinance a mortgage into a permanently lower rate and payment.*
Whether you’re a home buyer or seller or a real estate agent representing one, we’re always happy to provide home financing advice and solutions to help make your sale happen. Get in touch anytime to discuss these and other home financing strategies we offer.
*By refinancing a mortgage, total finance charges may be higher over the life of the new loan. Contact your Draper and Kramer Mortgage Corp. loan officer to discuss the total expected costs and savings of your refinance.