For most home shoppers, it’s pretty common to find attributes you love in more than one home. (After all, there are a lot of homes out there to choose from!) Two different properties may include different sets of features, both of which appeal to you in different ways. So you find yourself torn between which one you should choose. This is usually the time when you begin to look at the costs of each home a little more closely – because if you love them both, why not get the better value, right?
Sellers who have done their homework know this. And by that, we mean whether it’s a new builder or a resale home, their due diligence requires them to know the market of homes they are competing against in order to make a sale. That’s why they will often sweeten the deal by offering Seller Incentives which are specifically designed to make their property more appealing and financially desirable.
With this in mind, let’s look at a similar dilemma that two friends of ours are experiencing.
For example, let’s say Becky and Sam are considering two different homes that both have the same sales price. They really like home #1 a little better than #2, but the #2 seller has told them “If you buy my home, I’ll give you a 2% seller incentive.” That usually means they will apply that 2% as a credit towards your closing fees.
If Becky and Sam are buying a $250,000 home, that equates to a $5,000 “savings.” And if they take that incentive to a bank or a mortgage bank to get their new home loan and discover that the total closing costs (including prepaid taxes, insurance, etc.) come out to $10,000, that 2% will cover half of it – meaning they’ll only spend $5,000 out of their pocket instead of $10,000. It’s a deal that sounds pretty darn good to them . . .on the face of it.
What Becky and Sam don’t know, though, is that in the mortgage industry, we have a name for that: It’s called the “smoke.” Because much like ‘smoke and mirrors’ provide the illusion for magicians on stage, it’s a practice that extends far outside of the realm of entertainment. And when it comes to finances, “illusion” isn’t quite the word you want being tossed around to explain yours.
Because often, a seller will add a small caveat to that 2% incentive – that it’s only available if you use their mortgage lender. Certainly there may be good reasons to go to their lender – and they’ll be happy to explain why: They have a good relationship with them, they have a good reputation, they know their homes and their buyers – so the inference is that “If you use our lender, you’ll save money with our 2% credit, and everything will go smoothly.” (Looking for the “mirrors”? You just found them.)
Sounds really good so far, huh?
But let’s take another look at this same scenario. Say we take that same situation where these 2 homes are equal in price – and change the game a bit. Let’s say that Becky and Sam have shopped around and decided to get a mortgage loan with No Lender Fees. (That’s exactly the type of loan that Premier Mortgage Lending offers, by the way.)
Now the numbers start to do some interesting things.
Because with a “No Lender Fees” loan, Becky and Sam won’t pay anything for lender fees: no loan origination, underwriting, document preparation or processing fees – they all come to $0. That can easily equate to a substantial savings of $4-7,000 on the cost of their loan. But even if we assume the savings will only be $5,000, simply by choosing the right mortgage loan, Becky and Sam have leveled the playing field. Now – both homes will cost them the same amount for out-of-pocket closing fees, even with the’ 2% Seller Incentive.’
You know what that means? That Becky and Sam have taken back control over their purchase decision. The ‘smoke and mirrors’ have been revealed, and since they really like home #1 better than #2, they can now make a decision based on their real preference (and not on the imaginary premise that home #2 will save them money).
Finding a mortgage loan doesn’t have to be complicated. In fact, we’re on a mission to help buyers understand the differences and make better financial decisions at our new KnowBeforeYouOweNevada.com website. Check out our collection of Home Loans 101 videos – and you’ll be prepared to ask the right questions when you start home shopping, too.
Premier Mortgage Lending, NMLS #393282, is located at 701 N. Green Valley Pkwy., Suite 125, Henderson, 89074. The full-service lender is a member of the Las Vegas and Boulder City Chamber of Commerce, Better Business Bureau and Southern Nevada Home Builders Association, as well as an affiliate member of the Greater Las Vegas Association of Realtors.