Are you interested in lender paid closing costs? Increase tax deductions? Reduced appraised value risk?
As we all know, it goes without saying that receiving a great rate is extremely important, but without receiving proper education and guidance regarding a buyer’s needs, wants, and whys, they very well could be making a costly financial mistake in the tens-of-thousands of dollars that’s overshadowed by a visually appealing interest rate.
Team Koki found that the Premium Pricing option through Prosperity Home Mortgage is a great alternative to asking for seller subsidies in an extremely competitive marketplace with tight inventory. This financing option can potentially bridge the gap between buyer/ seller negotiations, give the buyer opportunities for their liquid assets, and ensure comfort levels are not exceeded.
When considering purchasing a home, a buyer may look at their cash to close and be considering short-term ownership plans, limited cash resources, value in conserving cash resources, expected family growth or using your liquid cash for alternative investment interests.
Or, maybe a buyer is under contract and a seller won’t budge on home inspection items, but the buyer doesn’t want to walk.
All loan programs offered at Prosperity allow for a buyer to choose Premium Pricing to assist with their closing costs, assuming they qualify while meeting the program’s guidelines. Premium Pricing allows a buyer to choose an above-market interest rate in exchange of receiving a percentage of their loan amount back as a lender credit to be applied towards their closing costs; essentially financing their closing costs through the interest rate.
Let’s consider a buyer who is purchasing an $800,000 home with 20% towards their down payment,
with intentions to own the property for 7 years. Based on the illustration below, if the buyer was
willing to accept a 0.250% higher rate which equates to $96 additional each month, they may be
eligible to receive 1.5% of their loan amount ($9,600) as a lender credit to be applied towards their
closing costs.
A buyer who chooses Premium Pricing which allows them to conserve their cash in today’s dollar
($9,600 in our example) now creates opportunity cost in funding other important life goals for what
may be zero financial trade-off.
Some of these opportunities could include:
- home improvements to accelerate their property’s equity position
- retirement plan contributions
- funding children’s college savings plan
- establishing / funding life insurance plan for family
- diversify alternative investments with liquidity
- emergency fund (health, employment, vacation, etc.)
The Power or Compounding
Warren Bufiet’s single most powerful factor stated behind building wealth is “Compound Interest”. If the above scenario allows a buyer to keep $9,600 of their cash to do as they please with, grew at a modest 5 percent annual compounded rate of return, the result of $9,600 in today’s dollar would be $13,594 in 7 years — a 58% return on investment (or 8.28% averaged annually)!!
Thanks Brad and Hunter at Prosperity Home Mortgage for sharing the great opportunity. You can reach them at bradley.katzen@phmloans.com and Hunter.Church@phmloans.com.