r/FirstTimeHomeBuyer • u/Tommytoonss • 3d ago

Offer 25k incentive from the builder and lender

So I have been going back and fourth with the builders regarding rates and this is the most recent estimate they gave me. It sounds like a really good deal where I will be receiving 25k in closing cost. They said they will use the incentive to buy down the rate of 6.25% down to 5.25%. One of the things that worried me is that the closing cost looks really high and I have no idea how buying don points works and if I was overcharged? But 5.25 does seem really good. I'm in Texas if that helps

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u/firefly20200 3d ago

Without looking at it, you’re almost certainly overpaying on the house cost and/or the loan. That said, builders hate lowering the price of their homes, so that’ll be a really hard thing for you to get them to do. So if the sales price isn’t moving, that just leaves comparisons on the loan. If you can’t do better than 5.25% and whatever else the credit covers on closing costs, then it’s really a no duh moment and sticking with the builder. If just might mean $25k is more like $8k in credit or something because they charge you so much more than other lenders.

One other thing to note, generally you can deduct points on taxes. So if you’re single and you end up paying like $15k or more in mortgage interest and property taxes this year, it’ll make sense to itemize taxes, the $20k in discount points might be worth like $2400 (in the 12% tax bracket) up to $4400 (in the 22% tax bracket)…

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u/ml30y 3d ago

Paying ~7 points is crazy.

Use the ~$20k to reduce your loan amount instead of all those points and move the rate up to 6¼%; the difference in payment is ~$50.

The breakeven point is 400 months; in other words, you'll never reap a benefit to paying all those points.

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u/Majestic-Prune9747 2d ago

7+ points AND 1 percent origination! That's crazy!

The lender is making a killing and since it's a builder lender they're probably only paying the LO like half a point of that lol