|
|
 
 |
 |
 |
|
The Sellers Concession |
|
The key to saving money on your mortgage is to get the best
possible mortgage for yourself. Sounds so obvious it's
silly, right? But the point here is that you don't need to
do it the way everyone else does. In fact, if you're willing
to educate yourself in the ways of the mortgage world, you
can save quite a bit of money by being a little different.
Below we introduce you to some of the strategies that other
people have used. But remember, the only person who knows if
it's right for you is you.
The 6% Solution
There is something called a seller concession that can save
you money. It works like this: suppose you agree on the
price of the house at, say, $200,000. You then ask the
seller for a 6% seller concession. What this means is that
you add (up to) 6% to the price of the house. That's right,
you're now going to pay $212,000 for that house -- but the
seller is going to give you that $12,000 back when the sale
takes place. You're going to use that money to cover all of
your closing costs.
If we pretend for a moment that those costs add up to
precisely $12,000, then what you've done is folded those
closing costs into the mortgage. Points, title, recordation
fees -and most of which are not tax-deductible -- have
effectively been included in your mortgage. Since your
mortgage interest is tax-deductible, these costs have
effectively become tax write-offs.
In addition, you don't have to come up with all that extra
cash at settlement. Your down payment will be somewhat
higher, (if you're putting down 20%, then in the current
example your down payment would be $42,400, versus $40,000)
and, of course, your mortgage payments will be higher, but
it ends up saving you money.
The seller has no reason to refuse this -- after all, the
agreed-upon price is still the same.
What's the catch? The catch is that the house has to
appraise for the higher value. If the appraiser comes back
and tells you that this house won't appraise for higher than
$200,000, you can't do it.
Let's look into this a little further. Say you buy the house
for $200,000. Your $40,000 down payment leaves you needing a
loan for $160,000. You get a 30-year loan at 8%. Your
monthly payments for principal and interest are $1,174.
Now say you decide to use the 6% seller concession strategy.
You buy this house for the price of $212,000. You put down
20%, and this leaves you needing a loan of $169,600. Your
monthly payments will be $1,244, or $70 more per month. Is
it worth it?
To begin with, many people aren't going to feel an enormous
difference between paying the extra $70 per month -- not
nearly as much as they would feel over having to fork out an
extra $12,000 all at once. But what about the fact that you
have to now pay this extra money over the course of 30
years? Well, over the course of 30 years you're paying
$25,200 more for that extra $12,000 ($70 more per month x 12
months in a year x 30 years = $25,200). However, remember
that's $12,000 less out of your pocket at the time of
closing. If you take $12,000 and invest it at 10% (less than
the market average has returned over the past 35 years) then
your money will grow to over $200,000 (before taxes) at the
end of 30 years. So, in this scenario, it's well worth it.
Naturally you'll want to run the numbers for your particular
loan to see whether it would be worth it for you.
|
|
|
|
|
 |
 |
 |
 |
|
|
|
|
|
