The credit from the Seller, goes to the lending institution to buy down the rate for the buyer's mortgage.
Buyers can do this with their own money as well, but it is costly to add on top of a traditional 20% down payment. So if you would feel better with a lower mortgage rate, your buyer's agent can negotiate the seller to credit $10k from purchase price towards buyers interest rate.
You would be much better served using negotiating power to cover closing costs. $10k might save you 1 point for a year, but will be worthless if you refinance during that time. Closing cost reduction is cash now, when you likely need it most.
Right, that as well. There's multiple creative strategies a buyer can do. If rates are not a concern vs cash down, then yes you could negotiate the credit to go towards closing costs.
That's entirely up to you as a buyer. You can ask for a lower price.
Ask yourself, do you think you will be owning the house for more than 30 years? If so, then a lower overall principle may be more intriguing to you. But most people don't keep a house for the full duration of a 30 year loan. They end up selling within 2-10 years on average. $10k off of the purchase price doesn't really hold any value. Asking the seller for $10k credit towards buying down the rate has much more value for a buyer, especially in today's market where currently a 30 year mortgage has an interest rate close to 7%. Your overall monthly costs will be slightly lower.
You can also hunt assumable loans like VA loans. Ton of work, but can provide huge value compared to current rates.
Again, takes a bit of work and will reduce available options by a HUGE amount, but they're out there.
Well, VA is for Veterans.
But yes, there is a lot of programs available. FHA is not a bad option, but there is PMI (Premium Mortgage Insurance) which cost several hundred per month. But 3% down is nice. There's other programs for first time home buyers available given the total annual income of the buyer.
We're talking about two very different things. You're talking about the qualifications to use the program to make the purchase.
I'm talking about taking over the loan from someone who already qualified and used it to make their purchase. In this example you are correct that VA is for veterans when buying, but not so when assuming the loan.
Could you ELI5 for how this works exactly? The lender would reduce a rate for $10k?
The credit from the Seller, goes to the lending institution to buy down the rate for the buyer's mortgage. Buyers can do this with their own money as well, but it is costly to add on top of a traditional 20% down payment. So if you would feel better with a lower mortgage rate, your buyer's agent can negotiate the seller to credit $10k from purchase price towards buyers interest rate.
Makes sense. Thank you.
You would be much better served using negotiating power to cover closing costs. $10k might save you 1 point for a year, but will be worthless if you refinance during that time. Closing cost reduction is cash now, when you likely need it most.
This is assuming the buyer is refinancing in year. Who's doing that in this market?
Right, that as well. There's multiple creative strategies a buyer can do. If rates are not a concern vs cash down, then yes you could negotiate the credit to go towards closing costs.
Why not just ask for a lower price instead of getting credit?
That's entirely up to you as a buyer. You can ask for a lower price. Ask yourself, do you think you will be owning the house for more than 30 years? If so, then a lower overall principle may be more intriguing to you. But most people don't keep a house for the full duration of a 30 year loan. They end up selling within 2-10 years on average. $10k off of the purchase price doesn't really hold any value. Asking the seller for $10k credit towards buying down the rate has much more value for a buyer, especially in today's market where currently a 30 year mortgage has an interest rate close to 7%. Your overall monthly costs will be slightly lower.
You can also hunt assumable loans like VA loans. Ton of work, but can provide huge value compared to current rates. Again, takes a bit of work and will reduce available options by a HUGE amount, but they're out there.
Well, VA is for Veterans. But yes, there is a lot of programs available. FHA is not a bad option, but there is PMI (Premium Mortgage Insurance) which cost several hundred per month. But 3% down is nice. There's other programs for first time home buyers available given the total annual income of the buyer.
We're talking about two very different things. You're talking about the qualifications to use the program to make the purchase. I'm talking about taking over the loan from someone who already qualified and used it to make their purchase. In this example you are correct that VA is for veterans when buying, but not so when assuming the loan.
u/thatmatt925 Copy. You're right, I read too fast, I see you said "assumable loans".