Why the price might not be the most important factor when buying

If you're financing your home, the purchase price might not be the most important factor in saving money.

Let me share a real-life example from my experience. The house was listed at $305,000, with the seller offering to cover part of the closing costs. My client wanted to make a competitive offer but was determined not to “overpay.” So, she considered offering $300,000 and rejecting the $3,000 in closing assistance.

The problem with this approach is that it ends up being worse for both parties.

Here's why: At $300,000, the principal and interest (P&I) payment on a 30-year VA loan (with zero down!) at 6.0% interest would be $1,798.65. If she bid $5,000 more, her monthly payment would only increase to $1,828.63—a difference of just $29.98 per month, or $359.76 per year. She'd need to own the property for over eight years before recouping the $3,000 saved by offering less. For most buyers, especially military buyers frequently seen in our area, this simply doesn't make financial sense.

Now, by getting the property $5,000 under asking, she is saving $10,792.80 over 30 years. But by declining the closing assistance, she is really only saving $7,792.80. Bear in mind that this money is saved over the lifetime of the loan, versus the immediate savings offered by the closing cost coverage. Plus, it doesn't account for inflation, which will likely depreciate the buying power of the $7,792.80.

You can easily see how you can take this principle to other negotiable items during the buying process such as repairs.  And the most significant savings, unfortunately, lie beyond my negotiating power—it’s your interest rate.