Many
prospective buyers have a downpayment but are 'short' dollars for
closing costs, (typically 2-2.5% of the loan amount), which include
'hard costs,' prorations, impounds for taxes /insurance, and 1
month’s house payment.
But
there are options that can HELP squeeze buyers into that first home.
'Lender
Paid' Closing Costs
FHA
–VA- and Fannie /Freddie all allow the lender OR sellers to pay the
buyer's closing costs.
Let’s
focus on the lender options
If
the buyer has a low 'debt to income ratio' (DTI) they can then
inflate their interest rate and use the lender 'rebate' to cover the
closing costs up to 3% (points) of their loan amount.
Banks
and mortgage bankers typically limit buyers to 1% of the loan amount
in lender paid closing costs; mortgage brokers are limited to 3%.
Most
buyers initially react poorly to the proposal of a higher initial
payment; so let’s do the math (all numbers rounded off) for just
the 'P and I' (principal and interest) portion of the monthly
payment.
Get ready to be surprised.
Interest
Rate vs. Lender Credit, Scenario 1
$300k
Loan
30
year Fixed
Interest
Rate: 4% (Zero Points)
Payment:
$1432
Lender
Credit to Buyer: “Zero Dollars”
Scenario
2
$300k
Loan
30
year Fixed
Interest
Rate: 4.5% (Zero Points)
Payment:
$1520
Lender
Credit to Buyer: $6,000
Dividing
the $6000 credit by the higher payment of $88, puts the buyer in the
positive cash flow position for 5 years 8 months (68).
The
issue to keep in mind, during those '68' months it’s
(statistically) a virtual certainty the homeowner will:
1)
Purchase a 'move-up' home
2)
Refinance their current loan to a lower rate, get rid of their
monthly mortgage insurance or get a 'cash out' refi.
Government
Loans
If a buyer is getting an FHA or VA loan, we can 'streamline
refinance' their loan 7 months later to a significantly lower
interest rate with little or no closing costs.
In
Closing
The
amount of lender paid closing costs a buyers can receive varies by
each type of lender.
Mortgage
brokers can pay up to 3% of the loan amount while banks and direct
lenders are limited to 1%.
So
shop around, it can be the difference of thousands of dollars. Call me anytime if you have questions.
Ken
951-760-3833
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