Paying full price with Concessions may be wise when Buying a Denver home
by Brian Burke
on Monday, November 30th, -0001 at 12:00am.
Pay Full Price For A Home In Denver
Youve been considering purchasing a Denver area home, have just 5% to put down, dont want to pay monthly private mortgage insurance, consider offering full price. Why you ask?
In todays market, homes are priced to sell. Sellers have very little wiggle room to negotiate . Most are willing to negotiate 3% of the purchase price of the home or give you 3% towards closing costs, but not both.
If you have a little down payment, more often than not, you are stuck paying expensive monthly mortgage insurance. For example, with 5% down on a 250k home purchase this insurance can run on the cheap end around $130 a month. And the expensive end well over $200 a month. The monthly premium for this insurance is based off down payment and credit scores.
What is It?
This insurance is mandatory on conforming and FHA mortgage loans that exceed 80% of the purchase price. It pays the mortgage loan down to 80% in cases of default or foreclosure making the home more salable. This insurance stays in effect until the loan to value reaches 78% often time staying on the loan for 10 years with a 5% down payment.
How To Avoid Paying It?
Weve all been taught that negotiating a little off the purchase price is a smart thing to do. I dont agree.
Ive prepared a mortgage spreadsheet that shows 3 different options for a 250k home purchase. The first is a scenario where 3% is negotiated off the price, youd pay all the closing costs and would have approximately $129 a month mortgage insurance.
Option #2 is full price with 3% from the sellers for closing costs. 2% of this is used to pay for the mortgage insurance premium upfront and yet get the same interest rate of option 1. Most of the closing costs are paid from these funds and the overall payment is $91 a month cheaper.
Option #3 is an FHA loan in which the down payment is 3.5%, in the interest rate is much cheaper at 4.375% but the monthly mortgage insurance is whopping $231 a month. Even though this one has the cheapest interest rate, it is the most expensive payment by far.
In this spreadsheet I have taken the $91 savings from option 2 when compared to option 1 and applied it to the payment which pays the 30 year term off in just under 26 years. I then set up the spreadsheet to show the difference in 10yrs on the loan (typically how long one would pay mortgage insurance), which clearly shows option 2 as the winner.
Most of us on average are not staying in homes much more than 10 years. If you are putting less than 5% down, before you make an offer for a home purchase, consider this strategy. It can make your payment much more comfortable.
If youd like a free, no obligation customized spreadsheet for a particular property zap me an email at firstname.lastname@example.org or call me at 720-988-5404.
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Brian Burke | Broker | ePRO | Expert | 303.955.4220 Office | 303.710.2609 Direct | Brian@kennarealestate.com