Homebuyers: compare cash outlay/monthly payment, not just list price

By
Real Estate Agent with Alain Pinel BRE 01367196

When home buyers are timid about writing a stronger offer, it’s almost always about price.

 

Should they walk away?

 

Perhaps they should take a closer look at the numbers especially if they really like the house .

 

It helps to illustrate what the differences are in terms of total cash outlay and monthly payments.

 

This illustrates a 10% down payment 4.5% interest rate for a conventional 30-year mortgage in Oakland CA, which was featured in 2013 by CNNMoney as one of the 5 best markets to sell a home and by Huffington Post as one of the most exciting cities in the country.

 

This illustration shows the difference when writing an offer for $25,000 more. The total cash outlay is around $3,500 more, NOT $25,000. And the monthly payment is $160 more. Are the differences that significant, or can the buyer try to be more aggressive, and thus, competitive, with his offer?

 

 

Sales Price

400,000

425,000

450,000

475,000

10% down payment

40,000

42,500

44,000

47,500

Fixed/pre-pay closing costs

17,842

18,712

19,575

20,445

Total cash outlay

57,842

61,212

64,575

67,945

PITI (principal, interest, taxes and insurance)

2,516

2,674

2,830

2,988

 

 

What calculator to use?

 

I have used Fidelity Agent for years, and with  that program, I can create a matrix.  I love that I have the app on my iphone, my ipad and my MacAir, and they’re all synched. Granted that it’s not perfect --- only a lender and an escrow officer can come with the most accurate computations ---  nonetheless, the estimates are good enough, and  the illustration speaks volumes.

 

For example, for one of my newest home buyers, this matrix helped them make a decision on how high they are willing to go when writing an offer on a home they loved (and eventually won!)

 

Interest rate --- yes, it's still low

 

In 2012, we saw the return of the multiple offer situation. The pace hasn’t let up in 2013, and appears to have taken speed in 2014 especially since we have such low inventories of homes for sale. Buoyed by the still low interest rates ----yes, you new buyers, 4.5% is considered low ---- buyers are scrambling to get back in the market before the home prices climb even higher above their budget range.  

 

Homebuyers...please see: Primary Mortgage Market Survey Archives --- 30 year fixed interest rates.

 

January 2003, interest rate was 5.97%

January 1993, interest rate was 7.99%.

January 1983, interest rate was 13.25%

January 1973, interest rate was 7.44% 

 

Homebuyers are best advised to consider taking steps to write a winning offer in a highly competitive situation. There are all kinds of blogs and other information on this subject….but when it comes to price, at least the homebuyers will have another tool to help them make a decision.


 

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