$23,000, $16,500, 4.25% versus 3.75%, and we choose our Mortgage Company
So recently I had some clients who are downsizing and wanted to buy new construction empty nester product. So we found a home style and builder of it and went to see their agent. They offered $10,000 off the base unit of the home and would pay $2500 in closing costs, but if and only if we used their mortgage company.
So I called the Builder’s mortgage company, told them my clients had over 740 credit scores ( the least score one can have and still get the best rate offered). I informed the mortgage originator that my client would be putting down 30% and asked her to give me what they were quoting that day on the basis of that criteria. Answer: 4.25%
Then I called one of my 3 mortgage guys and he quoted 3.75% and he would pay the $2500 in closing costs. So, what is that difference in interest payments over the life of a 30 year loan? Well at at $224,000 mortgage at 4.25% fixed for 30 years, one pays $172,698.63 in interest. At 3.75% with a $224,000 mortgage for 30 years, one pays $149,456.05. So that is about $23,000. Does that mean anything to you?
But that did not solve our problem of we wanted the $10,000 off the price and we wanted the $2500. Well, the day we go it is just me and hubby. We leave wife at home. We get some pretty extensive preliminary information. We (husband and I) go out and see the unit in a bedroom community already completed to get measurements, see how it feels, make a decision about finishing a bonus room on the second floor or re allocating that space to a basement, etc. Husband and Wife go to the “design center” to look at choices in cabinetry style, stain color, floor coverings, faucetry, etc. We meet for the 2nd time and the guy is expecting wife and husband to sign then and there and was shocked and a little peeved that they were not both there.
We had more questions and changes to original choices made. We had discussions about lots, and supposed lot premiums, we talked about how we did not like having to use their mortgage company….just talked. We signed nothing. And we left. Their broker called me and upped the ante with $4000 more. So now we had $16,500 on the table but we were married to their mortgage company and paying a higher rate and $23,000 more over the life of the loan.
When I had originally met my client he indicated he would be getting a mortgage for his new home. Even with the sale of his home he would still be getting a mortgage. So now he tells me push come to shove he can buy the home cash except that it would have to come out of retirement accounts and must be back in his account within 60 days or he would have a $70,000 tax consequence. So it is back to the builder’s boy. We are over whining about lots, making some more changes, adding some things in the garage, and we drift over to the financing. I work the conversation to find out if we go cash purchase can we still get the $14,000 off the price and take the $2500 they would pay in closing costs as well. I had set it up so that the builder’s rep would think it impossible for my guy to buy the home cash. He answered pretty cavalierly…absolutely..cash buyers get to take that money off the price. Ba BAM there it was.
So I made calls to all of my mortgage brokers. These guys are all sharp as a razor and I have honed my list of brokers over 25 years. My twin brother mortgage broker said you cannot close on the home with cash and then get a mortgage immediately thereafter. You have to wait 6 months, it was a Fannie and Freddie Mac Rule. The next guy had some thoughts but generally fell into the same category as my Twin brother. The next guy says…absolutely. So I put it to him in a way that he could understand, which was, if he was wrong my guy was going to have a $70,000 tax consequence for substantial penalty for early withdrawal and if that happened he would be looking to him to make him whole on that. So I made him put it in writing. I put in my response email the $70,000 downside to my client if he was wrong…maybe he would like to do some research, check with his corporate or find me textual authority for his statement. He did both. I have the Fannie Mae reg that says you can buy new and close on it for cash and immediately thereafter go out and get a mortgage on it and pull cash out.
He sent me the Fannie Mae regulation, forwarded me a cc from his superior in Atlanta confirming it could be done, and we went back took the $16,500 off the price, wrote the deal as a cash offer, and have our choice of mortgage companies this spring when we apply and lock our loan. That folks is representation…Contact me.