home builder cash back. How should we use it?

Question

We're getting cash back from a builder. We can use it towards upgrades or towards the loan or down payment. Does it make a difference in our loan how we use it?

Thanks,

Answer 1

EXCELLENT QUESTION!

This will be best used in buying down the interest rate. I am assuming you plan to keep the home and this is not a short term move. Each dollar you invest into the rate is tax deductible, is recouped in about 4 years, and continues to return apx 25% thereafter.

Many will suggest using it for closing costs but that has a 1 time benefit and reduces tax deductions.

1 hint...make your loan guy price the loan without using the credit and then have him adjust it downwards....otherwise they will factor your credit into their pricing and it could be hidden.

Here is additional info:

Answer 2

The lender won't care what you do with it. If you already have a 20% down payment that's enough of a down. If you've already ordered some upgrades, then extra toward more is nice if you need them. If you can get back yard landscaping. that is a nice feature to have.

Answer 3

Down payment. Cut those payments!