Dulles Diaries

Today, I got a call from someone I know in California, who is looking to buy a house there shortly. During the discussion, he mentioned that they are considering making an offer with a builder this coming weekend. And when he went into some specifics, he said they are writing an offer based on their monthly mortgage payment. Meaning..they are going to write a offer saying ‘the purchaser’s total monthly mortgage payments should not exceed $4200 (including Principal, Taxes, Insurance and PMI). How does it sound? Would you want to go that route?? What do you think?

I spent a long time with him on the phone explaining him things. Monthly payment has several variable factors in it and can be easily tweaked. A couple of discount points can bring the monthly payment down by an amount equal to the reduction if the loan amount is reduced by $35K (using $600K as the amount of loan). What if the interest rate goes up between today and Monday? Will the builder pay additional points to keep the monthly payments same or will he reduce the purchase price? Smaller factors like Home Insurance premiums also will be major factors in such a scenario. If some home insurance provider is offering a rate of $30/month less, then the builder can quote that premium and jack up the price by $5K (resulting in the same total monthly payments).

I personally do not think the builder’s Sales Manager or this buyer’s Realtor will have such wording in the verbage. It’ll probably be a situation where the real estate agent or the sales manager will breakdown the monthly payments and explain that at a particular sales price and today’s rates, the payments are going to be such and such. But this buyer is thinking about the monthly amounts only and not the purchase price. He thinks the monthly payment figure will be the main number in the offer.

While one needs to come up with a comfort level based on one’s finances, negotiating a monthly payment as opposed to purchase price (in my opinion) is a strict no-no.