What every number in OfferMath means, how it is worked out, and what each of the ten offer options does with the seller's money — with one worked example all the way through.
OfferMath takes one home, one buyer and one amount of seller money (the dollars the seller is willing to give up, whether as a lower price, a credit or a rate buydown) and shows you up to ten ways to spend it. This page explains every figure you see on the deal screen, the Compare table and the report, and walks through each option with the same example deal.
All figures are estimates for discussion only, not a loan offer. The buyer's lender sets the real rate, fees and approval. Confirm figures with the buyer's lender before you write the offer.
Every figure in the examples on this page comes straight from OfferMath's own calculator, run on this deal:
| Input | Value |
|---|---|
| Price | $500,000 |
| Interest rate (the base rate, with no points) | 6.5% |
| Loan | 30-year fixed, conventional |
| Down payment | 20% |
| Seller money | $10,000 |
| Expected appraisal | None (the appraisal gap part uses $490,000) |
Everything else uses OfferMath's defaults:
| Default | Value |
|---|---|
| Loan term | 30 years |
| Closing costs | 3% of each option's price |
| Property tax | 1.1% of each option's price per year |
| Home insurance | 0.35% of each option's price per year |
| HOA | $0 |
| Cost horizon | 5 years |
| Refinance | None |
| Credit score | 760+ |
| Rate drop per discount point | 0.25 percentage points |
Dollar figures are rounded to whole dollars and rates to three decimals, so a few parts may not add up to the total by a dollar.
Every option spends exactly the same seller money. The only question is how: take it off the price, give it to the buyer as a credit at closing (or as much credit as the deal allows, with the rest off the price), buy the rate down for the life of the loan with discount points, buy it down for the first one to three years with a buydown, or a mix. Because the seller's cost is the same in every option, you can compare them fairly and pick the one that fits your buyer.
The seller money in each option goes into one pot at closing. That pot pays the option's points or buydown first and then the buyer's closing costs (the lender, title, escrow and other fees due at closing, not counting the down payment). So when the seller money buys points or a buydown, less of it is left for closing costs, and the buyer brings more cash. The seller never pays more than the costs: any seller money left over is shown as unused credit.
On the deal screen, tap Edit to open Deal inputs:
The deal's chips pick a fixed loan or a 5-, 7- or 10-year ARM. From the buyer come the Loan type (Conventional, FHA, VA or USDA), the Credit score band, Cash available to close, Max monthly payment and the Pre-approved amount. The last three only raise warnings; they never change a figure.
When closing costs, tax or insurance are a percent, OfferMath takes it of each option's price. So an option with a lower price also has lower closing costs, tax and insurance. If you type them in dollars, every option uses the same dollars.
Each figure below is what OfferMath shows, how it is worked out, and why it matters for the offer. The examples use the Closing cost credit option unless they say otherwise.
What it is: everything the buyer pays each month for the home: principal and interest, mortgage insurance, property tax, home insurance and HOA dues. The deal screen shows the Year 1 total as “$3,132/mo”.
Its parts:
Why it matters: the payment is what the buyer feels every month and what a lender checks against income. Rank by Yr 1 when the payment is the buyer's main worry.
What they are: the monthly payment (and rate) in each period of the loan.
Why it matters: a buydown makes Year 1 look cheap; Year 3+ is the payment the buyer lives with afterward. Make sure your buyer can afford Year 3+. With no buydown on a fixed loan, all periods match.
What it is: the interest rate the buyer effectively pays in each period.
How OfferMath works it out: start from the base rate. Each discount point lowers it by the rate drop per point (0.25 percentage points by default), for the life of the loan. A buydown then lowers it further for its years only: a 2-1 buydown takes 2 percentage points off in year 1 and 1 off in year 2. No rate ever goes below 0%.
Why it matters: it shows at a glance whether a lower payment is permanent (points) or temporary (a buydown).
What it is: how much the buyer borrows.
How OfferMath works it out: the home's value for lending, minus the down payment. The value for lending is the option's price, or the expected appraisal when that is lower (lenders lend on the lower of the two). A percent down payment is taken of that value. Then the loan type's upfront fee is added, because these loans finance it into the loan:
In the example: 80% of $500,000 is $400,000, with no fee.
Why it matters: a higher price or a financed fee means a bigger loan, a bigger payment and more interest. It is also what OfferMath checks against the buyer's pre-approval.
What it is: the number of discount points the option buys. A discount point is prepaid interest: one point costs 1% of the loan amount and lowers the rate by the rate drop per point.
How OfferMath works it out: 1 discount point and 2 discount points buy exactly 1 or 2. Split: points + credit buys as many points as half the seller money pays for, which is usually a fraction (1.250 in the example).
Why it matters: points cost cash now and save money every month for as long as the buyer keeps the loan. They pay off only if the buyer keeps the loan long enough.
What it is: the money the buyer brings to the closing table.
How OfferMath works it out: price, minus the loan before any financed fee, plus closing costs, plus the cost of any points or buydown, minus the seller money used. “Price minus the loan” is the down payment, plus any part of the price above the appraisal. In the example (Closing cost credit): a 20% down payment, plus closing costs of 3% of the price, minus the $10,000 of seller money, comes to $105,000.
Why it matters: if the buyer doesn't have this cash, the deal doesn't close. Rank by Cash when cash is tight, and set the buyer's Cash available to close to get a warning.
What it is: how much of the seller money the option actually spends at closing. Lenders call this the seller concession.
How OfferMath works it out: the seller money, or the buyer's closing costs plus the points or buydown cost if those are smaller. For Price reduction it is $0, because the seller money comes off the price instead. For Credit + price cut it is the credit part only.
Why it matters: it is the figure checked against the loan type's seller concession limit.
What it is: seller money the option can't spend.
How OfferMath works it out: the credit offered minus seller money used. It appears when the credit is more than the closing costs plus the points or buydown cost.
Why it matters: a seller credit can only pay real closing costs; the buyer can't take the rest home. If you see unused credit, put it to work (more points, a bigger buydown) or ask for a lower price instead. The example has none.
What it is: the part of the points or buydown cost that the seller money doesn't cover. Cards show it as “Buyer adds $… beyond the seller money”.
How OfferMath works it out: the points or buydown cost minus the seller money, when that is more than zero. It is already counted in cash to close. In the example, only the 3-2-1 buydown has it: $7,889.
Why it matters: it is cash the buyer must find on top of the down payment and closing costs. Note that cash to close can rise even when this is $0: once the seller money pays for points or a buydown, it no longer pays closing costs.
What it is: the true cost of the home to the buyer over the cost horizon (5, 7 or 10 years; 5 by default), the period you expect the buyer to keep this loan. The app labels it “5-yr cost”, and the Compare table “5-year net cost”.
How OfferMath works it out:
Because the value is the same for every option, an option that buys the home for less (Price reduction, and Credit + price cut by its price cut) starts with more equity, and one that pays more than the value (Price bump + matching credit) starts with less. That is why these options' net costs move the most.
The refinance assumption: with Refinance set to At 12, 24 or 36 months (and inside the horizon), OfferMath replaces the loan at that month with a new one at the Rate at refinance (left blank, the Interest rate minus 1 percentage point). The refinance costs (2% of the balance by default) are added to the cash out. Any buydown money not yet used goes toward the balance first. After the refinance, the points' lower rate is gone, so a planned refinance makes points look worse; a buydown loses nothing, because its unused money goes toward the balance. With no refinance (the default), the loan runs as made for the whole horizon.
Why it matters: it is the fairest single number for comparing options. It counts the cash, the payments and what the buyer owns at the end. Rank by 5-yr for a buyer who plans to stay. In the example, net costs run from $163,843 (Price reduction) to $180,938 (Price bump + matching credit).
An ARM (adjustable-rate mortgage) keeps its starting rate for 5, 7 or 10 years, then adjusts. For an ARM, cards show an extra line: “From month 61: up to $…/mo at …%” for a 5-year ARM.
The ARM's net cost follows the expected path when there is an assumed index, and the worst case otherwise; the label says which, for example “5-yr cost (worst case)”. USDA loans have no ARMs.
Why it matters: a lower start rate is only safe if the buyer can still afford the worst case, or plans to sell or refinance first.
Cards show small colored notes. Red means a lender would reject the deal as written, or the deal is at risk. Amber is a budget check or something to confirm.
Red:
Amber:
In the example, none of the options has a warning, and neither does Credit + price cut in its $40,000 run.
What they are: the most seller money each loan type allows, as a percent of the home's value (the option's price, or the expected appraisal if that is lower):
| Loan type | Limit |
|---|---|
| Conventional, under 10% down | 3% |
| Conventional, 10% to under 25% down | 6% |
| Conventional, 25% or more down | 9% |
| FHA | 6% |
| VA | 4% |
| USDA | 6% |
For conventional, FHA and USDA, all seller money used counts. For VA, only the part beyond the buyer's normal closing costs and discount points counts. In the example (conventional, 20% down), the limit is 6% of the price, well above the $10,000 offered. You can change the limits in Rates & rules.
Why it matters: money over the limit is lost to the buyer, and the lender will make you rewrite the contract. If the seller wants to give more than the limit, take the rest off the price.
The deal screen ranks the options under “All 10 options” (“All 9 options” when Credit + price cut is left out) by the sort you pick: Cash (cash to close), Yr 1 (Year 1 payment) or 5-yr (net cost over the cost horizon). The top option is the best card, with “Saves $…” showing how far ahead it is of the next one. Each other card shows how far behind the best it is, for example “+$… over 5 yrs · $… to close”. Options that tie keep the order on this page.
In the example:
Pick the sort that matches the buyer's tightest limit: cash, monthly budget or long-term cost. The Compare card under the best card puts two options side by side (the top two, until you pick); tap the circle on any card to pick up to four. It marks the lowest in each row and sums them up in one line. Tap Share to send the buyer a report with the same table.
Then write the offer the way the winner needs it: a lower price, a seller credit toward closing costs, both, or a seller-paid points or buydown credit. Ask the buyer's lender how to word it for that loan.
In the order the app lists them. Each one spends the example's $10,000 of seller money, except Credit + price cut: all $10,000 fits as a credit, so the app leaves that option out of this deal, and its section uses the same deal with $40,000 of seller money. So in the example, “of the nine” means the other nine options.
The seller takes the seller money off the price. There is no credit at closing.
The price drops by the seller money. Down payment, loan, closing costs, tax and insurance are all worked out on the lower price (when they are percents). Seller money used is $0. For net cost, the home's value stays the deal's original price, so the buyer starts with the discount as equity.
The price falls to $490,000, the loan to $392,000, and the payment to $3,070 a month. With no credit, the buyer pays all closing costs, so cash to close is $112,700, more than Closing cost credit's $105,000. It has the lowest 5-year net cost of the nine: $163,843.
| Figure | Value |
|---|---|
| Price | $490,000 |
| Loan amount | $392,000 |
| Points | 0.000 |
| Rate per period | Year 1 6.500%, Year 2 6.500%, Year 3+ 6.500% |
| Cash to close | $112,700 |
| Seller money used | $0 |
| Unused credit | $0 |
| Buyer pays extra | $0 |
| Net cost over 5 years | $163,843 |
| Warnings | None |
| Period | Principal and interest | Mortgage insurance | Property tax | Home insurance | HOA | Monthly total |
|---|---|---|---|---|---|---|
| Year 1 | $2,478 | $0 | $449 | $143 | $0 | $3,070 |
| Year 2 | $2,478 | $0 | $449 | $143 | $0 | $3,070 |
| Year 3+ | $2,478 | $0 | $449 | $143 | $0 | $3,070 |
When the buyer has the cash and plans to stay: it lowers everything that follows from the price, for as long as they own the home. It also lowers the property tax when tax follows the price.
“A lower price lowers your loan, your payment, your tax and the amount you owe, for good. You'll bring more cash on closing day, because the seller isn't paying any of your closing costs.”
The cash to close. In the example, 2 discount points lower the payment more than the price cut does. The seller may also prefer a credit, because it keeps the sale price (and the neighborhood's comparable sales) higher.
The price stays the same and the seller pays the buyer's closing costs with the seller money.
The loan and payment are worked out at the full price and base rate. Seller money used is the seller money, up to the closing costs. The option sections below compare the others with it, because it leaves the price and rate alone; the app itself measures every option against the best card.
Closing costs are 3% of the price, more than the $10,000, so all of it is used. Cash to close is $105,000, the lowest of the nine.
| Figure | Value |
|---|---|
| Price | $500,000 |
| Loan amount | $400,000 |
| Points | 0.000 |
| Rate per period | Year 1 6.500%, Year 2 6.500%, Year 3+ 6.500% |
| Cash to close | $105,000 |
| Seller money used | $10,000 |
| Unused credit | $0 |
| Buyer pays extra | $0 |
| Net cost over 5 years | $167,390 |
| Warnings | None |
| Period | Principal and interest | Mortgage insurance | Property tax | Home insurance | HOA | Monthly total |
|---|---|---|---|---|---|---|
| Year 1 | $2,528 | $0 | $458 | $146 | $0 | $3,132 |
| Year 2 | $2,528 | $0 | $458 | $146 | $0 | $3,132 |
| Year 3+ | $2,528 | $0 | $458 | $146 | $0 | $3,132 |
When cash is the buyer's tightest limit. It leaves the most money in the buyer's pocket at closing.
“The seller pays $10,000 of your closing costs, so you need less cash to close. Your price, loan and payment stay the same.”
A credit larger than the closing costs is wasted (see unused credit), and every loan type caps it (see seller concession limits). It does nothing for the monthly payment.
The seller money first becomes the largest closing cost credit the deal allows, and the rest comes off the price. The card shows the split, for example “$14,226 credit · $25,774 off the price”.
The credit is the largest whole-dollar amount that is no more than all three of:
The rest of the seller money comes off the price. Closing costs (when they are a percent) and the limit are worked out at the new, lower price, so OfferMath solves for the split that fits them. With a dollar down payment, a lower price raises the down payment percent, which can move a conventional loan into a higher limit; OfferMath allows for that too. The credit is rounded down to a whole dollar, so the closing costs always cover it and there is no unused credit.
Down payment, loan, tax and insurance are worked out on the lower price, as for Price reduction, and the credit pays closing costs, as for Closing cost credit. Seller money used is the credit. For net cost, the home's value stays the deal's original price, so the price cut counts as equity.
OfferMath leaves this option out of a deal's list when it would only repeat another one: when all the seller money fits as a credit (it would match Closing cost credit), or when no credit fits at all (it would match Price reduction).
With the example's $10,000, all of it fits as a credit, so this option is left out. The figures below are the same deal with $40,000 of seller money and nothing else changed ($500,000, 6.5%, 30-year fixed conventional, 20% down).
Closing costs are 3% of the new price, and with 20% down the conventional limit is 6%, so the closing costs set the credit: $14,226. The other $25,774 comes off the price, which falls to $474,226. The loan is $379,381, the payment $2,971 a month, and cash to close $94,846. The 5-year net cost is $128,247. These figures spend $40,000 of seller money, so don't compare them with the other options' $10,000 figures.
| Split | Value |
|---|---|
| Credit | $14,226 |
| Price cut | $25,774 |
| Figure | Value |
|---|---|
| Price | $474,226 |
| Loan amount | $379,381 |
| Points | 0.000 |
| Rate per period | Year 1 6.500%, Year 2 6.500%, Year 3+ 6.500% |
| Cash to close | $94,846 |
| Seller money used | $14,226 |
| Unused credit | $0 |
| Buyer pays extra | $0 |
| Net cost over 5 years | $128,247 |
| Warnings | None |
| Period | Principal and interest | Mortgage insurance | Property tax | Home insurance | HOA | Monthly total |
|---|---|---|---|---|---|---|
| Year 1 | $2,398 | $0 | $435 | $138 | $0 | $2,971 |
| Year 2 | $2,398 | $0 | $435 | $138 | $0 | $2,971 |
| Year 3+ | $2,398 | $0 | $435 | $138 | $0 | $2,971 |
When the seller money is more than the closing costs or the concession limit can take as a credit. Closing cost credit would then leave money unused or over the limit, and Price reduction would leave the buyer paying every closing cost. This option uses the credit as far as it goes and puts the rest into a lower price, so the buyer gets both less cash to close and a lower loan and payment.
“The seller pays $14,226 of your closing costs, and the rest of their $40,000 comes off the price. You need less cash at closing, and your loan, payment and tax are lower for good.”
The limit: OfferMath uses the concession limits in Rates & rules, and the lender's program may differ. The lender must approve the credit as written in the contract, and a credit can only pay real closing costs: if the final closing costs come in below the estimate, part of the credit is lost. Set Closing costs to the lender's estimate before you write the offer, and write both the lower price and the credit into it.
The seller money buys one discount point, which lowers the rate for the life of the loan. Whatever is left goes to closing costs.
The point costs 1% of the loan amount. The rate drops by the rate drop per point. The seller money pays for the point first and then closing costs, so the buyer pays more of the closing costs than with a straight credit.
The point costs 1% of the $400,000 loan and lowers the rate from 6.5% to 6.25%. The payment falls to $3,067, and cash to close rises to $109,000.
| Figure | Value |
|---|---|
| Price | $500,000 |
| Loan amount | $400,000 |
| Points | 1.000 |
| Rate per period | Year 1 6.250%, Year 2 6.250%, Year 3+ 6.250% |
| Cash to close | $109,000 |
| Seller money used | $10,000 |
| Unused credit | $0 |
| Buyer pays extra | $0 |
| Net cost over 5 years | $166,371 |
| Warnings | None |
| Period | Principal and interest | Mortgage insurance | Property tax | Home insurance | HOA | Monthly total |
|---|---|---|---|---|---|---|
| Year 1 | $2,463 | $0 | $458 | $146 | $0 | $3,067 |
| Year 2 | $2,463 | $0 | $458 | $146 | $0 | $3,067 |
| Year 3+ | $2,463 | $0 | $458 | $146 | $0 | $3,067 |
When the buyer will keep the loan for years and wants a lower payment that never goes away, without the full cash of two points.
“The seller's money buys your rate down by a quarter point for the whole loan. You'll pay a bit more at closing, and less every month for as long as you keep this loan.”
An early sale or refinance: the point is paid up front and pays back a little each month. Confirm with the lender how much one point really lowers the rate; 0.25 is OfferMath's default, not a quote.
The seller money buys two discount points, for a bigger rate cut for the life of the loan.
Two points cost 2% of the loan amount and lower the rate by twice the rate drop per point. As with one point, the seller money pays for the points first, then closing costs. If the points cost more than the seller money, the buyer pays the rest (buyer pays extra).
The rate falls to 6.0% and the payment to $3,002, the lowest permanent payment of the nine. Cash to close is $113,000. Its 5-year net cost, $165,359, is second only to Price reduction.
| Figure | Value |
|---|---|
| Price | $500,000 |
| Loan amount | $400,000 |
| Points | 2.000 |
| Rate per period | Year 1 6.000%, Year 2 6.000%, Year 3+ 6.000% |
| Cash to close | $113,000 |
| Seller money used | $10,000 |
| Unused credit | $0 |
| Buyer pays extra | $0 |
| Net cost over 5 years | $165,359 |
| Warnings | None |
| Period | Principal and interest | Mortgage insurance | Property tax | Home insurance | HOA | Monthly total |
|---|---|---|---|---|---|---|
| Year 1 | $2,398 | $0 | $458 | $146 | $0 | $3,002 |
| Year 2 | $2,398 | $0 | $458 | $146 | $0 | $3,002 |
| Year 3+ | $2,398 | $0 | $458 | $146 | $0 | $3,002 |
For a buyer who will stay a long time and has the cash: the savings keep adding up every month.
“This buys your rate down by half a point for the life of the loan, for the lowest lasting payment. It takes more cash at closing, and it pays off the longer you keep the loan.”
Cash to close, and a refinance plan: if rates fall and the buyer refinances soon, the points are gone. Lenders may also limit total points and fees.
A buydown uses seller money to pay part of the buyer's payment in the first years. In a 2-1 buydown, the rate is 2 percentage points lower in year 1 and 1 point lower in year 2. From year 3 the buyer pays the full rate.
The loan's note rate stays the base rate. For each bought-down year, OfferMath works out the full payment minus the payment at the lower rate; twelve months of that difference, for each year, is the buydown's cost, paid at closing. The seller money pays it first and then closing costs.
The rate is 4.5% in year 1, 5.5% in year 2 and 6.5% after. The payment is $2,631, then $2,875, then $3,132. Cash to close is $114,104. The buydown's cost fits inside the $10,000, so the buyer pays nothing extra for it, but less of the seller money is left for closing costs.
| Figure | Value |
|---|---|
| Price | $500,000 |
| Loan amount | $400,000 |
| Points | 0.000 |
| Rate per period | Year 1 4.500%, Year 2 5.500%, Year 3+ 6.500% |
| Cash to close | $114,104 |
| Seller money used | $10,000 |
| Unused credit | $0 |
| Buyer pays extra | $0 |
| Net cost over 5 years | $167,390 |
| Warnings | None |
| Period | Principal and interest | Mortgage insurance | Property tax | Home insurance | HOA | Monthly total |
|---|---|---|---|---|---|---|
| Year 1 | $2,027 | $0 | $458 | $146 | $0 | $2,631 |
| Year 2 | $2,271 | $0 | $458 | $146 | $0 | $2,875 |
| Year 3+ | $2,528 | $0 | $458 | $146 | $0 | $3,132 |
Its 5-year net cost, $167,390, is exactly the same as Closing cost credit's. Within the horizon, a buydown just moves money in time: the cash paid at closing comes back as lower payments in years 1 and 2.
When the buyer needs a lower payment now and expects their income to grow, or hopes to refinance in a year or two (any unused buydown money then goes toward the loan balance).
“Your payment starts lower and steps up each year until year 3, when you pay the full payment for the rest of the loan. Plan your budget around the full payment.”
Year 3+. Lenders usually qualify the buyer at the full rate, not the bought-down one; check with the lender. Not every loan program allows every buydown.
A one-year buydown: the rate is 1 percentage point lower in year 1, then full from year 2.
The same way as the 2-1 buydown, for one year only. It costs less, so more seller money is left for closing costs.
The rate is 5.5% in year 1 and 6.5% after. The payment is $2,875 in year 1 and $3,132 after. Cash to close is $108,085, and the 5-year net cost is the same $167,390 as Closing cost credit.
| Figure | Value |
|---|---|
| Price | $500,000 |
| Loan amount | $400,000 |
| Points | 0.000 |
| Rate per period | Year 1 5.500%, Year 2 6.500%, Year 3+ 6.500% |
| Cash to close | $108,085 |
| Seller money used | $10,000 |
| Unused credit | $0 |
| Buyer pays extra | $0 |
| Net cost over 5 years | $167,390 |
| Warnings | None |
| Period | Principal and interest | Mortgage insurance | Property tax | Home insurance | HOA | Monthly total |
|---|---|---|---|---|---|---|
| Year 1 | $2,271 | $0 | $458 | $146 | $0 | $2,875 |
| Year 2 | $2,528 | $0 | $458 | $146 | $0 | $3,132 |
| Year 3+ | $2,528 | $0 | $458 | $146 | $0 | $3,132 |
When the buyer wants a softer first year without using up the whole credit: it keeps cash to close close to a plain credit.
“Your first year's payment is lower; from year 2 you pay the full payment.”
The jump in year 2. Make sure the full payment fits the buyer's budget.
A three-year buydown: 3 percentage points lower in year 1, 2 lower in year 2, 1 lower in year 3, then full from year 4.
The same way as the 2-1 buydown, for three years. Because it costs the most, it can cost more than the seller money; the buyer pays the difference (buyer pays extra). This is the one option with a Year 3 row; its Year 3+ payment starts in month 37 (Year 4+ in Compare).
The rate is 3.5%, 4.5%, then 5.5%, and 6.5% from year 4. The payment is $2,400, $2,631, $2,875, then $3,132. The buydown costs more than the $10,000, so the buyer adds $7,889, and cash to close is $122,889, the highest of the nine. The 5-year net cost is again $167,390.
| Figure | Value |
|---|---|
| Price | $500,000 |
| Loan amount | $400,000 |
| Points | 0.000 |
| Rate per period | Year 1 3.500%, Year 2 4.500%, Year 3 5.500%, Year 4+ 6.500% |
| Cash to close | $122,889 |
| Seller money used | $10,000 |
| Unused credit | $0 |
| Buyer pays extra | $7,889 |
| Net cost over 5 years | $167,390 |
| Warnings | None |
| Period | Principal and interest | Mortgage insurance | Property tax | Home insurance | HOA | Monthly total |
|---|---|---|---|---|---|---|
| Year 1 | $1,796 | $0 | $458 | $146 | $0 | $2,400 |
| Year 2 | $2,027 | $0 | $458 | $146 | $0 | $2,631 |
| Year 3 | $2,271 | $0 | $458 | $146 | $0 | $2,875 |
| Year 4+ | $2,528 | $0 | $458 | $146 | $0 | $3,132 |
When the lowest possible early payment matters most, and the buyer has the cash to add to it.
“You get the lowest payment for the first three years, but you'll bring more cash to closing, and from year 4 your payment is the full amount.”
The “Buyer adds” line, and the year 4 payment. Many loan programs limit 3-2-1 buydowns; check with the lender.
The price goes up by the seller money, and the seller gives the same amount back as a closing cost credit. The seller nets the same; the buyer finances the extra.
Price, down payment, loan, closing costs, tax and insurance are all worked out at the higher price. The credit pays closing costs like Closing cost credit. For net cost, the home's value stays the deal's original price, so the bump above it counts against the buyer.
The price rises to $510,000 and the loan to $408,000. Cash to close is $107,300, and the payment is $3,195, the highest of the nine. Its 5-year net cost, $180,938, is also the highest.
| Figure | Value |
|---|---|
| Price | $510,000 |
| Loan amount | $408,000 |
| Points | 0.000 |
| Rate per period | Year 1 6.500%, Year 2 6.500%, Year 3+ 6.500% |
| Cash to close | $107,300 |
| Seller money used | $10,000 |
| Unused credit | $0 |
| Buyer pays extra | $0 |
| Net cost over 5 years | $180,938 |
| Warnings | None |
| Period | Principal and interest | Mortgage insurance | Property tax | Home insurance | HOA | Monthly total |
|---|---|---|---|---|---|---|
| Year 1 | $2,579 | $0 | $468 | $149 | $0 | $3,195 |
| Year 2 | $2,579 | $0 | $468 | $149 | $0 | $3,195 |
| Year 3+ | $2,579 | $0 | $468 | $149 | $0 | $3,195 |
When the seller won't give any money but will accept a higher price, and the buyer is short on cash. It keeps cash to close low at a lasting cost every month.
“You'd borrow the seller's credit and pay it back with interest over the loan. It saves cash now and costs more every month. It only works if the home appraises at the higher price.”
The appraisal: if the home appraises below the bumped price, the lender lends on the appraisal and the buyer pays the gap in cash. Set an expected appraisal and OfferMath flags it in red (see the appraisal gap).
Half the seller money buys discount points; the other half is a credit toward closing costs.
OfferMath buys as many points as half the seller money pays for, often a fraction of a point, and lowers the rate by that many times the rate drop per point. The rest of the seller money pays closing costs.
Half the seller money buys 1.250 points, lowering the rate to about 6.188%. The payment is $3,051 and cash to close $110,000.
| Figure | Value |
|---|---|
| Price | $500,000 |
| Loan amount | $400,000 |
| Points | 1.250 |
| Rate per period | Year 1 6.188%, Year 2 6.188%, Year 3+ 6.188% |
| Cash to close | $110,000 |
| Seller money used | $10,000 |
| Unused credit | $0 |
| Buyer pays extra | $0 |
| Net cost over 5 years | $166,117 |
| Warnings | None |
| Period | Principal and interest | Mortgage insurance | Property tax | Home insurance | HOA | Monthly total |
|---|---|---|---|---|---|---|
| Year 1 | $2,447 | $0 | $458 | $146 | $0 | $3,051 |
| Year 2 | $2,447 | $0 | $458 | $146 | $0 | $3,051 |
| Year 3+ | $2,447 | $0 | $458 | $146 | $0 | $3,051 |
For a buyer who wants some of both: a lower payment for good and a little help with closing costs.
“Half the seller's money lowers your rate for the life of the loan, and half pays closing costs.”
Lenders price points in their own steps, so the real rate cut for a fraction of a point may differ. Get the lender's quote.
An appraisal gap is the amount the price is above the home's appraised value. Lenders lend on the lower of the price and the appraisal, so the buyer must pay the gap in cash or get the price lowered.
When you set an Expected appraisal below the price (Deal inputs → More), OfferMath sizes every loan on the lower of the price and the appraisal, and the deal screen adds an Appraisal card with two more options.
The example below is the same deal with a $490,000 expected appraisal: an appraisal gap of $10,000. Both options borrow 80% of $490,000, which is $392,000. When the price stays at $500,000, the $10,000 over the appraisal comes out of the buyer's cash, not the loan. In this run, the Price bump + matching credit option also gets a red “$20,000 over appraisal” warning: its price of $510,000 is $20,000 above the appraisal.
The price comes down to the appraised value, and the seller still gives the seller money as a credit.
Price is the expected appraisal. The loan, closing costs, tax and insurance follow that price. The seller money pays closing costs. For net cost, the home's value is the appraisal.
The price is $490,000, the loan $392,000, and the seller's $10,000 still pays closing costs. Cash to close is $102,700 and the payment $3,070.
| Figure | Value |
|---|---|
| Price | $490,000 |
| Loan amount | $392,000 |
| Points | 0.000 |
| Rate per period | Year 1 6.500%, Year 2 6.500%, Year 3+ 6.500% |
| Cash to close | $102,700 |
| Seller money used | $10,000 |
| Unused credit | $0 |
| Buyer pays extra | $0 |
| Net cost over 5 years | $163,843 |
| Warnings | None |
| Period | Principal and interest | Mortgage insurance | Property tax | Home insurance | HOA | Monthly total |
|---|---|---|---|---|---|---|
| Year 1 | $2,478 | $0 | $449 | $143 | $0 | $3,070 |
| Year 2 | $2,478 | $0 | $449 | $143 | $0 | $3,070 |
| Year 3+ | $2,478 | $0 | $449 | $143 | $0 | $3,070 |
Whenever the seller agrees. In the example it is lower than Keep price, cover the gap on payment, cash to close and 5-year cost.
“The home appraised low, so we ask the seller to meet the appraisal. You keep the seller's credit and need less cash.”
The seller may refuse, or want to drop the credit in return. Check the contract's appraisal terms.
The buyer pays the full price and covers the appraisal gap in cash.
The price stays the same, but the loan is sized on the appraisal, so the buyer's cash to close includes the gap. Closing costs, tax and insurance follow the full price. The seller money pays closing costs. For net cost, the home's value is the appraisal.
The price is $500,000 but the loan is $392,000, so cash to close is $113,000, including the $10,000 gap. The payment is $3,082 (the same loan payment as Renegotiate to appraisal, with tax and insurance on the higher price). The 5-year net cost is $174,867.
| Figure | Value |
|---|---|
| Price | $500,000 |
| Loan amount | $392,000 |
| Points | 0.000 |
| Rate per period | Year 1 6.500%, Year 2 6.500%, Year 3+ 6.500% |
| Cash to close | $113,000 |
| Seller money used | $10,000 |
| Unused credit | $0 |
| Buyer pays extra | $0 |
| Net cost over 5 years | $174,867 |
| Warnings | None |
| Period | Principal and interest | Mortgage insurance | Property tax | Home insurance | HOA | Monthly total |
|---|---|---|---|---|---|---|
| Year 1 | $2,478 | $0 | $458 | $146 | $0 | $3,082 |
| Year 2 | $2,478 | $0 | $458 | $146 | $0 | $3,082 |
| Year 3+ | $2,478 | $0 | $458 | $146 | $0 | $3,082 |
When the buyer wants the home more than the money, the seller won't move, and the buyer has the cash. It keeps the deal together.
“To keep the price, you'd pay the gap between the price and the appraisal in cash, on top of your down payment. You'd be paying more than the lender thinks the home is worth.”
Cash to close, and the equity: the buyer starts owning less than they paid.
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