Mortgage Savings

Saving for a mortgage requires that one acknowledges the key players involved in the purchase of a house, while also finding the best mortgage for one’s personal financial situation. Intuitively this implies finding the right mortgage fit. Although at the outset some strategies for finding the right fit may appear counter-intuitive, understanding the world of the mortgage industry can save the house buyer a significant amount of money in financing their home, leading to satisfaction with their purchase.

Seller Concession

One strategy has been coined the 6% solution which utilizes a legal concept coined “seller concession”. In real-estate law seller concession refers to the act of the seller granting the buyer the option of benefiting from the value of their entire purchase, including auxiliary fees incurred when closing a mortgage. Here the initial purchase price is raised ≥6% and then given back to the buyer to cover the additional costs associated with closing their mortgage. The act of the selling party granting this privilege to the buyer is reflected during the negotiation of a mortgage with the lender. During this exchange the buyer grants the seller the option of increasing the price of the house equal to or less than six-percent of the seller’s concession, or 6% of the overall price. This action can ultimately be used to save the home buyer money in the long run over the life of the mortgage, given their personal financial situation. The 6% solution is a highly technical strategy that works to reduce costs that lie outside the tenets of the mortgage, yet are still incurred upon the home buyer when purchasing a house. Taking this line of reasoning in the opposite direction, if a home buyer were to not increase the value of their home by less than or equal to 6% of the initial purchase price, then they would also be accepting to pay additional charges that cannot be covered by their mortgage, such as the administrative fees at the time of closing. Assuming a mortgage is the only reliable source of financing most people’s houses, then there will be a lack of resources when the time comes to close the mortgage and finish paying off one’s house entirely.

Moreover, initially paying more for one’s home at the outset will reduce the overall cost of the mortgage over the lifetime of the loan. When a lifetime of interests payments on a loan is taken into account, 6% initially on say $100 000 mortgage loan will, over the duration of the loan, end up costing the home buyer more than initially paying 6% more in addition to the initial price of the house from the outset. In fact the extra 6% on top of the mortgage will end up costing the home buyer roughly twice as much over the duration of the loan when factoring in interest payments.

Seller Financing

Another strategy is seller financing, where the home buyer pays the seller directly over a set-period of time. For people who cannot qualify for a loan this strategy is appealing, for it is possible to negotiate a better interest rate and avoid the administrative fees associated with obtaining a mortgage, including mortgage insurance. Seller financing allows for a more one-to-one relationship in buying a house, where both parties are aided by relying on their mutually benefiting financial circumstances for closing the deal. Often this strategy benefits sellers who have had difficulty selling their house.

Tips

Implicit in both Seller Financing and the 6% Strategy is the notion of acknowledging the parties involved when someone buys a home. Alongside the seller and the buyer is the regular lenders who are providing the resources required to buy a home. Paying the lenders off, or paying the principal and not simply the interest will greatly reduce one’s payments over the course of the mortgage. It is also important to acknowledge oneself as a key player in the transaction, seeing as lenders compete for people’s business as home buyers who are willing to pay interest. Thus, negotiating the terms of a mortgage is possible. More than being the responsible thing to do, it is imperative to inform oneself of all key players involved before financing a large purchase.

Conclusion

In conclusion, it has been found that when financing a house one can find long-term savings in taking alternative approaches like utilizing the 6% Strategy or considering Seller Financing. Although seemingly counter-intuitive, acknowledging their utility in the current housing market opens doors to long-term savings and satisfaction with one’s purchase.