Lower Your Interest Rate Not Your Offer Price

Does A Lower Offer Price Or Lower Interest Rate Have More Value?

When buying a home, too often the focus of getting a great deal is placed solely on negotiating the lowest price on the property.  Does the lowest price always mean the best deal?  Common sense tells us that the less we pay for something, the better the deal we received.  Most times, if a home buyer is paying cash for a property, the lowest price may be the best deal.  However, if one is buying a home with a Fort Lauderdale mortgage, there may be more value to a lower interest rate than a lower offer price.

It’s very common for a home buyer to negotiate their transaction with the seller paying all or part of their closing costs.  This Ft Lauderdale mortgage strategy is most often used to minimize the amount of cash the home buyer has to bring to closing.  As a Fort Lauderdale mortgage broker and CMPS professional, I understand the value of seller paid concessions.  Most FHA mortgage transactions rely on seller paid closing costs to make buying a home possible.  Conventional mortgage transactions are less reliant on seller contributions to make the deal work.

When considering a Fort Lauderdale mortgage in conjunction with buying a home, you may find more value in using seller paid concessions to obtain a lower interest rate rather than negotiating the lowest sales price.  Let me explain and illustrate how this Ft Lauderdale mortgage strategy can help a home buyer get the best deal.

John and Nancy are buying a home priced at $350,000 with a Ft Lauderdale mortgage.  They want to get a great deal, so they are considering reducing their offer price by 4% or $14,000. This would make their offer $336,000 and with a 20% down payment they would have a Fort Lauderdale mortgage amount of $$268,800.  A 30 year fixed rate Florida home loan at 4.75% would give them a monthly payment of $1402.19.  Over the term of the loan, John and Nancy will have paid $235,988 in interest expense and $504,788 in monthly payments.

Now let’s look at buying a home at the asking price of $350,000 and receiving a 4% seller paid contribution that will be used to obtain a lower interest rate. Using the same 20% down payment criteria, John & Nancy would now have a Ft Lauderdale mortgage amount of $280,000.  As a Fort Lauderdale mortgage broker, I would use the 4% seller contribution to get the home buyer a lower interest rate. They could obtain a 30 year fixed rate Florida home loan at 4.0% with a monthly payment of $1336.76.  over the life of the loan John & Nancy will pay $201,235 in interest expense and $481,235 in monthly payments.

This Fort Lauderdale mortgage strategy resulted in saving John and Nancy $34,753 by offering a higher price and using a seller paid contribution to obtain a lower interest rate. Now, here’s the frosting on the cake.  The 4% contribution paid by the seller is recognized by the IRS as prepaid interest and becomes a tax deduction for a home buyer. That means the $14,000 seller paid contribution becomes a tax deduction for John and Nancy.  Assuming they are in a 28% tax bracket, that would provide John & Nancy another $4,000 tax deduction bringing their total savings to almost $39,000.  Imagine, paying more for the home and saving money just by knowing how to structure a Fort Lauderdale to benefit the home buyer. Contact your professional Fort Lauderdale mortgage broker and CMPS professional, Harvey Collier today to help you structure your next Florida home loan.

Harvey Collier  -  First Trust Mortgage – 954-629-6151