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The changing market


The real estate "boom" is over, experts say. With change comes both risk and opportunity.

Baiting buyers in a cooling market
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Here's how paying buyer points becomes a win-win situation: On a $300,000 home, a motivated seller is likely to slash 3 percent, or $9,000, off the price to get his or her house sold quickly. By leaving the price unchanged, and instead using that money (or even less) to pay for mortgage points, you're helping buyers secure a significantly lower interest rate and resulting monthly payment. That makes your home more affordable -- a big plus in neighborhoods where many first-time buyers are still priced out of the market.

How much more affordable? In the example above, buyers would pay roughly $1,575 per month on the $291,000 home with a 6.5-percent five-year adjustable-rate mortgage, or ARM, and no points. At the $300,000 price, where the seller pays 3 points to lower the buyer's rate to 5 percent, the monthly payments drop to $1,250 on a five-year ARM -- a $325 monthly savings. Both scenarios relate to interest-only loans, common among cash-strapped buyers. (The incentive would not be as favorable for buyers who opt for a conventional 30-year mortgage, since paying 3 points upfront would lower the rate by about three-quarters of a percentage point.)

And don't forget, the buyer also gets the tax deduction on those points in April, Walters says, a $2,700 value if they're in the 30-percent bracket.

"Very few sellers bring that payment out first," he says. "They usually focus on the sales price, but sellers can really change the game by focusing on payments. Frankly, most buyers think in those terms already."

Other creative concessions
If you're in a community where comparable homes are selling slowly, or you just need to unload your home in a hurry, there are a couple other concession strategies to consider.

As was common during the real estate crash in the late 1980s, you can always sweeten the pot by offering to pay out for some or all of the buyer's closing costs. But sellers should consult a real estate agent or attorney before making any offers. Lenders generally limit seller concessions to closing costs and prepaid fees, including loan-origination fees, credit reports, appraisals, certain taxes, points, deed recordings and home inspections. Sellers are also allowed to pay for the buyer's private mortgage insurance, or PMI, at closing. Furniture and other big-ticket items that the buyer wants left behind are not considered allowable.

If a concession is considered non-allowable, the lender could reduce the home price by the amount of the concession. That alone could scuttle the deal.

A buyer's down payment may also limit the amount of closing costs you can cover.

The Federal National Mortgage Association, referred to as Fannie Mae, and the Federal Home Loan Mortgage Corp., or Freddie Mac, which purchase home loans from lenders, place their own restrictions on seller concessions. On loans where buyers put less than 10 percent down, seller concessions are limited to 3 percent of the total sales price. The limit climbs to 6 percent of the sales price when buyers put between 10 percent and 20 percent down, and 9 percent on loans where the down payment is 20 percent or more.

-- Posted: March 2, 2006
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