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The battle over purchase price!

Is it worth it?

Have you ever been in a negotiation where you and the seller just could not agree on the final price? They want more, you just want a little less and it goes on for a week or two, until finally someone gives. It can be a very anxious time in your life. Of course everyone wants to save whenever they can, so that $5,000 or $10,000 you are haggling over could make a big difference. Or can it? What if during the course of that one week rates went up? Would that $5,000 be worth it then? Let’s take a look.

If you were buying a home for $300,000 and rates were fantastic, then your monthly payment may be exactly what you were hoping to spend (or close to it). However, instead of taking advantage you spend the next week or two negotiating another $5,000- $10,000 off the price and over that time the market shifts. Maybe it’s as little as a %, and if it is, that is probably minimal, and not worth the trouble, but what if it adjusted by % or worse case a full 1% (similar to a 2 week movement in November/ December 2010!)?

Cost Decrease Rate increase Payment increase 30 year cost

$5,000 1/2% $65/ month $23,400

$5,000 1% $157 $40,820

This is a big difference, so ask yourself…was the extra $5,000 worth it? Certainly not, but maybe $10,000 is worth it? Let’s take a look:

Cost Decrease Rate increase Payment increase 30 year cost

$10,000 1/2% $37/ month $13,320

$10,000 1% $128 $46,800

And could you imagine if you spent all that time and the seller did not budge. Now you are stuck with a $300,000 home and a % higher interest rate. You just lost $92/ month, which is a total of $33,120 over the next 30 years!

We completely understand that in a market like this, every penny counts, and we always want to get more bang for our buck, but there comes a point where it should all make sense. Rates have more of an impact on the payment than the actual cost of the home. We all want to wait until the real estate market bottoms out, but typically if you wait for the bottom, you have already missed it.

Warren Buffet once said “Be fearful when others are greedy and greedy only when others are fearful.” This holds true in the real estate market. Too many times we get caught up in the media and let our emotions dictate our plans. We buy stock when it is going up and sell it when it is going down. Seems silly, right? What happened to buy low and sell high. Real estate is the same thing: If you see a good deal, jump on it. As long as you are near the low, you can’t lose when times get better. Getting to the very bottom of the bowl leaves you with an extremely small window of opportunity to get the value and is like trying to catch a falling knife! He also stated “Price is what you pay, value is what you get.”

Now is a great time to buy! Give us a call and we can educate you on what your options are.

Example Home Purchase Rates up 1% & Prices Steady Rates Steady & Prices Drop 10% Rates up 1% & Prices Drop 10%
Today Probable Improbable Improbable
Home Price Home Price Home Price Home Price
$400,000 $400,000 $360,000 $360,000
Interest Rate Interest Rate Interest Rate Interest Rate
Today’s Rate 1% higher Today’s Rate 1% higher
Principle and Interest Principle and Interest Principle and Interest Principle and Interest
$X $X + $248 $X - $209 $X + $14
Total Interest Paid Total Interest Paid Total Interest Paid Total Interest Paid
$Y $Y + $120,000 $Y - $57,000 $Y + $51,000

is your home in need of repair?

do you know how you are going to fix it up?

@

Conventional Loan

FHA Loan with your own cash to fix up

FHA (203) K Loan

Purchase Price

$250,000

$250,000

$250,000

Repairs and upgrades

$35,000.00

$35,000.00

$35,000

Total Price

$250,000

$250,000

$285,000

3.5 % Down

NA

$8,750

$9,975

5% Down

$12,500

NA

NA

Loan Amount

$237,500

$241,250

$275,025

30 Years Rate

Market Rate

Market Rate

Market Rate

Total Monthly Payment

($1,502)

($1,518)

($1,731)

Difference compare with Conv.

N/A

$16

$228

Difference compare with FHA

($16)

N/A

$212

Total Cash out of pocket

$47,500

$43,750

$9,975

If you think your home is in need of work or need of improvement, we have an easy solution for you. One of our programs is 203(k) loan program which offer you the resources to rehabilitate a home that may be in need of repair, either the home that you currently live in, or that special fixer-upper opportunity. One single loan is used to pay for the purchase (or refinance) and the cost of renovating the home. Using a 203k loan provides access to large loans. And "Yes", there are limits, but you can borrow enough to finance 110% of the home’s projected value after improvement. 203k loans, like other FHA loans, have low down payment requirements (for better or worse). Here is the comparison among Conventional, FHA, and FHA 203(k): What kinds of Benefits will you get from 203(K)

Saving time and money: Use one loan to buy and renovate a great home to meet your needs and it also means one time closing cost for the transaction. The 203k rehab loan allows you to hang on to your savings when fixing up a broken-down house. Repairs on a house can be very expensive. If you rely on your savings to get you through, you could run out of money quickly. What is worse, you might not be able to resell the house and then your savings are depleted.

Low interest rate: When you deal with the FHA, you will get a better than average interest rate on the money you need to borrow. Many rehab loans in the commercial marketplace can be very expensive. With a 203k rehab loan, you know that you will be getting a fair interest rate.

Great deals: Rehab loans are designed for "fixer-uppers." Therefore, this loan will allow you to qualify for a home purchase that many other programs would not. You can get a house at a lower price than you normally would be able to on the open market.

More Affordable: Properties that are sold "As-Is" often would be relatively cheap but not qualify for a 203(b) standard FHA loan. However, 203(k) loans are designed to improve, update, and modernize the home.

Additional Equity: The borrowers will create Equity with the transaction by adding value to the home. Investment for Future: You can use an FHA 203k loan to purchase a 1 to 4 unit property allowing you to renovate a home that also brings you rental income as an excellent long-term investment.