This from my Arizona Republic real estate column (permanent link):
Are home-buyers best served by the vigilant efforts of an experienced buyer’s agent? Consider a transaction we have in play right now.
The buyers are a young couple, about to be married. They have about $10,000 in cash.
With a conventional loan, they could put 20% down on a dismal starter home. Or, with Private Mortgage Insurance, they could put 10% down on a nicer home.
But with an FHA loan, $10,000 is 3.5% down on a $285,000 home. We can argue the wisdom of making so small a down payment, but the FHA loan program is the path to homeownership for millions of Americans.
And $285,000 is too much house for our buyers. They found a nice lender-owned two-story home in the suburbs selling for $169,000. The down payment on that home would be $5,915. But the closing costs would probably run to another $5,000 — which comes to more money than they have.
They qualify for the $8,000 first-time home-buyer tax credit, but they won’t get that until they file their tax return. They also qualify for a state-funded grant program that will contribute up to 22% of the purchase price — but which can’t be used for the down payment or the closing costs.
Here’s the deal we put together. We offered $175,000, $6,000 over list price. In exchange, we asked the seller to contribute 4% of the full purchase price to defray the buyer’s closing costs.
The down payment will be $6,125, leaving the buyers $3,875 in cash to pay for the endless expenses of moving into a new home.
And there will be about $2,000 left over after the closing costs are paid. This will be used to buy down the interest rate. The buyers will end up with just over 25% equity in the property for a cash outlay of $6,125 — all at a very low monthly payment. And they’ll still have their $8,000 tax credit to look forward to.
This is the kind of outcome a skilled buyer’s agent can achieve.
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