How best to utilize seller credit

Question

Hello BP!

Im looking into a deal and if all goes well am hoping to get a sellers credit of 6% which would be roughly $36000. If all this were to pan out, we would plan to pay off closing costs which we estimate to be roughly $12,000 - then were thinking to use remaining $22,000 to buy down the rate to around 5.75%. I have floated the idea of buying down rate to around 6% which would leave about $5,000 that we could use towards repairs or any other prepaid expenses. I would love to hear opinions on all of this and if my thinking is sound. Any other ideas on how best to utilize the credit if were to be accepted.

Thank you!

Ying Tang · Answer

Hi Daniel! Allocating credits to closing cost is pretty standard. Have you calculated the break even time length for rate buy down? I think there will be several rate cuts in the coming years and I would refinance a couple times during the next couple years instead of doing a rate buy down.

Daniel Jodrey · Answer

Hello @Ying Tang

Thank you for your time and responding!

We would plan to pay down closing costs which we estimate to be about $12,000. That would leave a remaining $24,000. I believe this should be roughly 3-4 years to break even. I have read that refinancing also costs money and of course rate growth/decrease is unknown.

The deal we are looking at would cash flow at a rate of 6% or lower- however does not cash flow at current 6.85% rates. This is why I am thinking to use remaining $15k of the remaining $24,000 to buy rate down to 5.99%, and then still have roughly $7k left over for repairs etc.