How to Stretch Your Dollar When Buying A Home
Buying a home is one of the biggest investments you’ll ever make. It can feel overwhelming to figure out how to make your budget work best for you. The good news is that sellers and lenders are often willing to work with buyers to create a deal that gives more bang for their buck, a win / win for everyone. Understanding the types of deals available can make a significant difference in your monthly payments and long-term financial picture.
We’ll explore a few options you can utilize when negotiating a home purchase, such as closing cash, interest rate buydowns, and HOA payments. We’ll also compare how applying the same amount of money to these areas can benefit you in the long run versus simply lowering the purchase price.
1. Closing Cash
This is exactly what it sounds like, extra cash given from the seller to the buyer at closing. This can be used by buyers in various ways: towards their down payment, closing cost assistance, future home improvements or even a nice vacation to celebrate the new home!
Scenario: Let’s say you’re buying a home for $500,000, and the seller agrees to contribute $10,000 toward closing costs. A $10,000 price reduction to $490,000 might only save you around $50 per month on your mortgage, while closing cash gives you $10,000 immediate cash to use where it best serves the buyer.
*See the full explanation of this number analysis with this report by Cross Country Mortgage , based on current listing at 285 8th St 1R in Downtown Jersey City. Numbers fluctuate daily, contact your lender for the most recent info.
2. Interest Rate Buydown
For anyone holding out for rates to drop, an interest rate buydown is a powerful tool. Sellers and even lenders may offer to pay upfront to reduce your mortgage interest rate, which lowers your monthly payment.
Scenario: Let’s say you have a 5.99% rate in today’s market. With a 2-1 Interest Rate Buydown, this means your new interest rate becomes 3.99% for the first year, then 4.99% for the second year (“2-1” means 2 points the first year, 1 point the second year). Check out this scenario run by our friends at Cross Country Mortgage:
- Price Reduction of $20,000 = $80 Savings Monthly
- Price Reduction of $30,000 = $130 Savings Monthly
- Rate Reduction to 3.99% = $1,000+ Savings Monthly
- Rate Reduction to 4.99% = $500+ Savings Monthly
I think you see where we’re going with this.
3. HOA Payments
If the property you’re considering is part of a homeowners association (HOA), the monthly dues can add hundreds of dollars to your housing expenses. One way to make a deal more appealing is to ask the seller to cover a year’s worth of HOA fees upfront.
Scenario: Let’s say the HOA fees are $300 per month. Asking the seller to cover the first year would save you $3,600. This might be more beneficial for your immediate budget than a $3,600 price reduction, which might only shave $20 off your monthly mortgage payment. Plus, not paying HOA fees for the first year can provide some breathing room as you settle into your new home.
Price Reduction vs. Deal Incentives: What’s Best for You?
When negotiating, many buyers instinctively focus on lowering the purchase price, but it’s important to consider the bigger picture. A fractional reduction in price impacts your monthly payment only slightly, while options like closing cost assistance, interest rate buydowns, or covering HOA fees can have more immediate, noticeable benefits. To see actual numbers for a home you’re interested in purchasing, just ask your neighborhood lender, I’m sure they’d be happy to run scenarios with you.
Final Thoughts
Understanding the different ways you can stretch your dollar during the home-buying process is key to making a smart investment. Every buyer’s financial situation is different, so be sure to work closely with your real estate agent and lender to figure out which options make the most sense for you.
