How To Get the Lowest Rate on a Purchase Mortgage?

By Michael Ciavarini, Boston’s Certified Mortgage Planner

BOSTON MASSACHUSETTS - The #1 answer when I ask this question in my seminars is call a bunch of mortgage brokers and pit them against each other. That will get you a market rate and really bad service. The answer is the two most powerful words in the mortgage industry and we will get there but first let me show you what you are shopping for. Here is your mortgage.

This equation creates two completely different emotions. The consumers who are commodity based, who get a mortgage describe it in one word adjatives as [fear, debt, liability, and a big bill, ok that’s two words]. Those who plan a mortgage use [asset, value, compound-interest, wealth and arbitrage]. These are my students. Now you qualify for both mortgages. The question is which one would you rather have?

What my students learn from me is you don’t ever get a mortgage, from here on you always plan a mortgage.

There is a book you need to read and at the end of this post I have a FREE contest give-a-way for you.

Price Centric
Today’s real estate market is Price centric, [P] in the equation. But when we study the equation it becomes obvious that mortgages are centered on interest rate [I] and term [N] not price. So as a financial mathematician and mortgage planner, I ask you the question;

“As a buyer, why are you so fixated on [P]rice when it impacts your wealth the least?”

Lesson 1. Define Your Terms
To successfully purchase real estate in a any market you must first define your terms but not as a buyer, but as a seller. Every buyer becomes a seller, even in death. Trust me, your heirs will sell your house. So to properly plan a mortgage I would have you answer three questions.

(1)    What is your desired monthly payment?
(2)    How long will you live here?
(3)    What is your expectation of profit upon sale?

Lesson 2. Create Your Own Mortgage Terms
Always work from your exit which you defined in lesson 1. Those who worked from entrance, hence pre-approval have made headlines since 2006. They lost their homes due to poor to no exit planning. Their exit was based on unsustainable appreciation projections and euphoria and when both disappeared euphoria turned to depression with the disappearance of their wealth. They got a mortgage with no regard for proper exit planning. This cannot happen to you when we clearly define your exit regardless of [P]. Now, from your exit terms we work backwards to define your mortgage parameters [I] and [N] (interest and term). Let me show you.

Example
Let say your answers are $1,600, 5 years, and $58,000 (these are the #1 answers in my surveys of first time home buyers in Boston by the way). Your terms for exit will determine your interest rate [I] which is directly tied to your wealth which is answer 3, $58,000. You desire $58,000 at sale in 5 years. Simple. The final component is Appreciation. Here we consult our Realtor to calculate accurate trends right down to the street and building you are buying. It is critical that you use a Realtor.

If the appreciation rate is 0% we use zero. If it is negative we use negative. If it is slightly positive we use 0%. We paint no blue sky. This money has to be there for you. It is the basis for your buy. After all, what do you want from your Real Estate? I assume you desire profit to buy your next property, right? Without that profit ($58,000) you don’t have a down payment for your move. This is why great care is taken by myself and your Realtor to ensure accuracy.

Now, What were those TWO WORDS?
Let us recap. We have determined your exit strategy. We have found a property that satisfies our quick sell requirements. So let’s make an offer. What about [P], Price? We rely on your Realtor and if necessary my appraiser to determine the Fair-Market-Value (FMV) which is your offer. We pay FMV but we want more don’t we? We want the $58,000, the pot at the end of your rainbow. To get it, we must buy down the rate because our calculations require a rate far less than the market is offering. So what do we do?

We employ the most powerful two words in the mortgage dictionary, SELLER CONCESSION. Did you know the seller can give you 6% of the sale price? With that we buy down your rate, pay out closing cost preserving your wealth, pay out PMI, pay off rent left on your apartment lease and so forth. We take all of the savings and divert it to an investment vehicle that matches your term of ownership [N] so there is no surrender charge. If your closing cost are $6,000 we get the seller to pay for it and we send the $6,000 to your investment vehicle and so on. The power of the SC is the compounding of savings it creates. This is wealth beyond what you could have ever imagined. In most cases it out paces appreciation

Interest Rate
Let say the prevailing rate is 5% but we require 4% for maximum principle pay down which is Equity which is wealth generation. To get 4% we buy down the rate using discount points and bill it to the seller. We take the monthly savings and route it to your investment vehicle or extra principle payments (which I do not recommend).

Why would a seller agree to this?
Because any sale with a seller concession is a win/win. The seller in return for their generosity receives FMV for their property [P]. Remember, our offered price produces your wealth. If you can buy a property and exit out with the $58,000, enjoy living in it and the added investment from the tax benefits, wouldn’t you pay FMV for it? Sure you would. For the seller the money they give you is less than a price reduction and you are buying their property. They can now move on with their life. Also the seller can claim the funds given to you as an expense against the profit of the property on their tax return.
 
Here is the true benefit. The Secret.
I sit with the seller on your behalf and provide FREE mortgage planning for them. I determine their parameters and get them a Seller Concession twice as big as the one they gave you because they are trading up which cancels anything they gave you but they still get the tax write-off. This is the POWER of the SELLER CONCESSION. THIS IS THE PIECE EVERYONE LEAVES OUT. The seller gets what they want, a low cost mortgage on their new expensive home, an exit strategy where they had none, their home sold and you get your $58,000. Now when we come back to sell your house in 5 years, we will put a seller concession on your property using a V-PMP to entice buyers to buy it and get you one on your purchase. It never ends... Every property should have a seller concession. Those who do not know about this are placing low-ball offers on multiple properties and leaving so much wealth on the table with no guaranteed of profit or exit. They are [P]rice centric and wealth blinded. Do share this post.

The Seller Concession
It is the most powerful two words in the mortgage business but it is also the most miss-understood, miss-used and most underutilized feature to any mortgage Fixed or ARM. The Seller Concession was designed specifically to create wealth for buyers and to aid a seller in selling their property during difficult markets. To often it is miss used as a $3,000 credit only to be added to the sale price. Never ever use that strategy as that creates debt tripling the cost of what you paid off. Never agree to this type of offer.

The Contest
To learn the proper technique and to see an example of the Seller Concession the way it is intended to be used in a mortgage planning model view my video; but before you press play let’s give you the question you have to find the answer to in the video for your FREE copy of The Last Chance Millionaire.

In the video I state which lending institution does the best job of the Seller Concession?
(A)    Fannie Mae
(B)    Freddie Mac
(C)    FHA
(D)    Tony Soprano (forgit about it!)

Ok, now you can click PLAY!

http://www.youtube.com/watch?v=gPIGBtyo2w4


Give Away Contest
Everyone should read the book The Last Chance Millionaire by Douglas R. Andrew. I will give you a FREE copy if you can answer the question right during your FREE consultation. Call me to book a FREE home buying consultation and receive your book.

Take-a-Ways

1.    Never get a mortgage. You PLAN a Mortgage
2.    Always use a Realtor
3.    Start by clearly defining your exit parameters then work backwards
4.    Your Exit parameters define your rate. Never shop for a rate. Define it.
5.    Offer FMV with a Seller Concession. Low-ball offers never build wealth. It’s just a couple of bucks.
6.    Invest your savings. Compound the seller concession into massive wealth. Double what was given.
7.    If your term of ownership is 60 months or less, never buy into a building with sales constraints.


Michael Ciavarini is a Certified Mortgage Planner for GuaranteedRate Inc.,  and a Radio Personality on Boston Money Matters talk shows. This strategy and his others have been featured on WBZ TV 4 News. Michael is a YouTubber, Blogger, Videographer and the creator of the V-PMP (Video-Personalized Mortgage Plan) which are revolutionizing the way Real Estate is presented, financed and sold. To view Michael’s videos visit his blog at http://BostonMortgagePlanner.com and subscribe to his RSS feed.

Feel free to contact Michael at:
mikec@bostonmortgageplanner.com, tel (617) 532-3972 preferred.
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