An Out-of-the-Box Fort Lauderdale Mortgage Strategy That Beats a Price Reduction

Finding an out-of-the-box Fort Lauderdale Mortgage strategy that beats a price reduction requires an experienced Loan Consultant. Why is it that buyers who don't need seller paid contibutions for closing costs to complete their purchase always think a price reduction is a better deal?  It stands to reason that if you pay less for a property and as a result have a smaller mortgage loan, then your overall cost of homeownership should be lower.  Closer examination of this issue may surprise you.

Let's take an example of a home with a $200,000 asking price.  The buyer is considering a Conventional 30 year fixed rate loan at 4.50% with a 20% down payment.  Is a buyer creating more value and savings by offering $190,000 purchase price with no seller contribution, or paying $200,000 and receiving a $10,000 seller contribution toward costs?  The answer may surprise you.

Most buyers would only consider using the $10,000 to pay closing costs on their Fort Lauderdale mortgage.  However, there are several other options that can be considered as well.  A buyer may be better served by a Temporary Rate buy down, a Permanent Rate buy down, or a combination of a buy down and seller paid closing costs.  The right choice will depend on the buyer's needs regarding, monthly payment, available cash-to-close and lowest total cost of ownership.

For this example, let's consider 3 potential options to weigh against a straight price reduction:

Option 1 - Buyer discounts sales price and offers $190,000 with no seller contribution toward their Fort Lauderdale mortgage.  The buyers total cost over the life of the loan including interest expense and out-of-pocket closing costs is $134,250.

Option 2 - Buyer pays $200,000 for property and seller contributes $10,000 to pay closing costs and prepaid expenses on the buyer's Fort Lauderdale Mortgage.  The buyers total cost over the life of the loan including interest expense and out-of-pocket closing costs is $127,600.

Option 3 - Buyer pays $200,000 for property and seller contibutes $10,000 to fund 2/1 Temporary buy down (rate is 2.5% first year, 3.5% second year, 4.5% years 3-30 and pays $6400 toward closing costs.  The buyers total cost over the life of their Fort Lauderdale mortgage loan including interest expense and out-of-pocket closing costs is $129,450.

Option 4 - Buyer pays $200,000 for property and seller contributes $10,000 to fund Permanent buy down to an interest rate of 3.75% and pays $3600 toward closing costs.  The buyers total cost on their Fort Lauderdale mortgage over the life of the loan including interest expense and out-of-pocket closing costs is $118,735. 

As you can see, Option 4 provides the buyer a Fort Lauderdale mortgage strategy with the lowest cost over time.  Wait a minute, there's more!  The Permanent buy down option also provides an additional tax deduction to the buyer.  The cost of the buy down is considered prepaid interest by the IRS and is actually tax deductible to the buyer, even though paid by seller.  This could add an additional $2,000 benefit to the buyer reducing the total cost to $116,735. 

That's a total savings of $17,515 over the price reduction option. If you are searching for a home that's the best deal with the lowest cost of ownership, I highly recommend using an out-of-the-box Fort Lauderdale mortgage strategy that beats a price reduction every day of the week.

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