I was recently watching a first time home buying show on HDTV. It was pretty interesting, but one part of the process in this case really got to me.
The first time home buyer was offered some insane incentives to sign the loan agreement for the house. She was offered an instant $10,000 and a 42 inch plasma TV! I have heard of individual people doing some crazy stuff to sell their house, but this was a brand new townhome and the incentives were being offered by some sort of professional (loan officer or something, I’m not really sure).
So here is my point: Whenever someone offers you an incentive to do something, it should raise giant red flags instantly and always. NEVER make a decision or sign anything just because you are offered an incentive. It is CRUCIAL to explore and research everything when you are offered an incentive. People don’t just throw money and gifts into deals to make it fun, they do it to compensate for something else. If you don’t know why you’re being offered an incentive, you need to do a lot of research.
On the first time home buying show on HGTV, the home buyer was offered $10,000 and a TV to agree to the following loan:
- Amount: $197,000
- Interest: 7%
- Term: 40 years
- Monthly payment: $1,525
Now I don’t know this persons credit scores and how much they put down, but in my opinion those loan terms are HORRIBLE. 40 years at 7%?! Oh my.
The show seems like it was tapped recently, so let’s just do some crunching to see what we can do with today’s rates. I went over to BankRate.com and put in some numbers. I assumed the buyer on the show paid only 5% down (I think I remember the house pricing being around 200k). Here are the terms I was able to get:
- Amount: $197,000
- Interest: 6.06%
- Term: 30 years
- Monthly payment: $1,181
Now let’s loosely compare the two loans (obviously ignoring small fees and other expenses). Here is the savings if the loan from BankRate was used: $306,840. Now, do you want $10,000 and a TV right now, or $306,840 in savings over 30 years? I think you get the point.
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