No payments? No Closing Costs? Lower interest rate?

February 15th, 2011

There are many ways a seller can participate to assist you with your new home loan and home purchase. Fannie Mae, Freddie Mac and FHA guidelines allow for the seller to assist home buyers. Here are three ways a seller can assist you with your new home purchase, use the free mortgage calculators to calculate your savings.

1. No payments?
If you saw a real estate flyer that said "no payments for six months" and the price was comparable to other homes for sale in the area would you be interested? It is allowable for a seller to make principal and interest payments for you as part of the sales transaction. Using the monthly payment calculator for a $225,000 30 year mortgage at 4.75 percent you see the payment is $1173.71 per month.

Instead of writing an offer for a lower price ask instead for the seller to pay through the closing for the first six months of your mortgage payment, $7044. A lowering of the sales price by $7000 will only save you a few hundred dollars in down payment and a few dollars per month in monthly mortgage payment. Having no payments for six months will allow you to save thousands of dollars.

2. No closing costs?
Part of any real estate transaction are the closing costs for the lender, closing agent, title company, appraiser and other fees. Use the closing costs calculator it is easy to see how quickly closing costs, recurring and non-recurring can add up. A safe rule of thumb to use is 3 percent of your purchase price for closing costs on top of your down payment for funs you will need to close your new home loan.

Sellers are eligible to pay all of your closing cost. With a credit to you through the settlement agent for your costs you can save thousands of dollars on your transaction.

3. Lower interest rate?
Part of your closing costs are your loan points. One point is equal to one percent of your mortgage amount. For example on a $125,000 mortgage one point is $1250, for a $231,000 mortgage one point is $2310. As part of your offer to the seller of your new home you can request that he pay points to permanently buy down your mortgage rate.

If the current cost of a 4.75 percent mortgage is one point then the cost for a 4.5 percent mortgage might be two points, and for a 4.25 percent mortgage perhaps 3.5 points. Using the prequalification calculator and the monthly payment calculator you can see the strong impact buying down the interest rate can have on your ability to qualify or your monthly mortgage payment.

Consider the $225,000 mortgage above with a $1173.71 per month payment at 4.75 percent. As you can see with the monthly payment calculator the payment at 4.5 percent is $1140.04, a savings of approximately $34 per month, or about $400 per year. At 4.25 percent the payment is $1106.86, a savings from the 4.75 percent rate of $67 per month or about $800 per year.

The cost to buydown the mortgage rate to 4.25 percent from 4.75 percent can cost $7875 at 3.5 points. For this cost from the seller you save $800 per year. For even less money the seller can pay six months of mortgage payments for you and you save over $7000 in six months.

If you are buying a home be creative with how the seller can help save you money using the purchase price. Lowering the purchase price may sound like a great deal, but an even better deal is having the seller use the purchase price to save you thousands of dollars in cash.

Dennis C. Smith is co-owner and broker of record for Stratis Financial in southern California. He has over twenty years' experience in the mortgage industry.

Posted By :
Dennis C. Smith is co-owner and broker of record for Stratis Financial in southern California. He has over twenty years' experience in the mortgage industry.

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1 Responses to "No payments? No Closing Costs? Lower interest rate?"
  1. ket 06, Jun, 2011

    Thanks to for this article!!!!


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