By Tammy Engel
Mortgage Advisor
Creating a Win-Win Offer
Mortgage Matters
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Home ownership happens when a willing buyer and a willing seller agree to the terms of sale. Want to know a secret strategy that allows both sides to win?
The usual common sense stuff has to be in place: An asking price that reflects current market conditions, a property free of health and safety issues, and a pre-approved buyer whose loan is ready to go.
That said, consider the seller’s side first. If they are selling their home for $200,000 it’s not like they’ll walk away with $200,000, even if they own it outright. Sellers have costs for listing the house with a Realtor and for escrow and title closing fees. Usually we talk about what the seller will “net” after all is said and done.
Buyers are very much concerned with how much money they’ll need to bring to the closing table. Depending on the loan program, there might not be a down payment needed, but there are buyer closing costs to consider. This is a figure that should be part of the discussion with your lender from the very beginning so there are no surprises.
Let’s assume the buyer is using the USDA home loan program with no down payment and the closing costs, taxes, and insurance total $5000. The funds can come from savings, from a documented family gift, from the seller, or from any combination of those. What if the buyer were to offer full price and ask for $5000 closing cost credit from the seller, instead of lowering the price to $195,000 and coming up with their own cash?
On the seller’s side, either way they “net” the same. $200,000 less $5000 nets the same to the seller as lowering the price to $195,000. But if they sell their home for “full price”, they’ll feel like they got everything they asked for!
And for the buyer, the closing costs credit means they can get into the house with literally no money out of pocket. Because the home’s price is a little higher, the monthly payment might be about $25 more for the note repayment and $5 more for property taxes. Would it be worth it to you to get into a house for “free” at a cost of around $30 per month?
This conversation is something that needs to happen at the very beginning of your home shopping process, and your lender and Realtor need to both be in on the conversation. A little strategic planning before you make an offer could make the difference between a seller who takes your offer because they got exactly what they wanted, or another rent payment to your landlord.
