My dear Buyer,
I'm sorry you didn't get the house you wanted. I know you had your heart set on it.
May I take this time to revisit the importance of looking at cost to buy versus sales price.
What is your actual cost to buy?
For our purposes, cost to buy is a combination of your down payment and closing costs. We will also compare monthly mortgage payment at certain price points. Since you are in an enviable position of having $300,000 as a down payment, your buying ability is certainly so much more solid than some other buyers who are competing to buy a house as well.
Let's analyze the past offer you made. We discussed writing an offer at $800,000, but you decided to be more conservative and write an offer for $780,000 instead. At first glance it may have seemed that the difference between $780K and $800K is significant. After all, it's $20,000! However, one does not come up with the money all at once; rather, that money is spread over 30 years during the life of the loan.
I don't want you to miss out next time, so perhaps you should take a look at this matrix and see what that $20,000 difference looks like, and what other purchase prices/cash outlay may be at higher prices. This assumes $300,000 down payment at 4% interest for 30 years.
These are mere estimates, and your lender can probably give you a more detailed and better explanation/matrix.
Sales Price |
780,000 |
800,000 |
825,000 |
850,000 |
Down payment |
300,000 |
300,000 |
300,000 |
300,000 |
Closing costs |
22,478
|
23,053
|
23,777 |
24,492 |
Total cash outlay |
322,478 |
323,053 |
323,773 |
324,493 |
Monthly payment (principal, interest, taxes and insurance) |
3,332 |
3,454 |
3,606 |
3,759 |
See the difference between a purchase price of $780K and $800K? Although the purchase prices are $20K apart, take a look at actual COST of buying:
---Your cash outlay for the offer at $800,000 would have been $323,053 or $575 more than if you offered at $780,000.
---And your monthly payment would have been $122/month more
As of this writing, inventory is still quite low ---- there are few houses on sale and to choose from. At the same time, prices are continuing to rise, and so do interest rates. Waiting to buy may you cost you more. Steve Harney blogged: Buying a House? Consider Cost not just the Price.
Shall we do this exercise again next time you write an offer?
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