Buy down our rate, or take home extra cash at closing?

[Jamie Warcken]

We are under contract for a primary SFH for $455k (asking $480k) with 6% concessions, or $27,300. We are using FHA with 3.5% down, or $15,925. Current interest rate is 6.75% and a 3/2/1 buy down costs $19,929. This is a move-in ready "worst house in the best neighborhood" situation, and the wall-to-wall carpeting is positively oozing with potential. We would not make any reno moves until we've lived there months, or maybe years, to figure out exactly what we'd like to do with it. Trying to work out the numbers with regards to our plans for the house. Of course we'd want to wait until after we renovate to refinance. Would it be in our best interest to take the buy down and save on the monthly payments, or take the extra cash at closing which we would just sit on until we figure out our renovation plan? Thaaaaank youuuuu and Happy New Year!

[Kevin Sobilo]

@Jamie Warcken, buying down the rate is good ONLY when you feel certain that you will not be taking any "actions" for a fairly long time and by actions I mean things like selling or refinancing.

First figure out what buying down the rate will cost and then the difference in payment and see how many YEARS it will take just to recoup that investment. That doesn't even factor in the time value of money because you could have used that money elsewhere. So, if that if the break even point is 3 years, its more like 4 years.

If you think its possible or even likely that you could sell or refinance in that time or even somewhat longer then it really makes no sense. Keep in mind the average buyer keeps a property only around 7 years!