If I offer over asking, how much does my mortgage payment increase?

If you’re a home buyer who has carefully saved for a down payment, figured out an exact monthly budget, and carefully reviewed your pre-approval with a mortgage banker, hearing your real estate agent say, “We’re going to need to go over asking,” could be a little startling, or even concerning. However, a smart change in your homebuying strategy doesn’t always lead to a big change in your mortgage payment. Let’s take a look at how you can win the home without breaking the budget. 

When Do I Offer Over Asking?

Certain Markets 

In certain geographical and seasonal markets, offering sellers more than the list price is almost a matter of routine. For example, the Nashville area is very desirable, but has little inventory. So, home buyers in Nashville can almost always expect to offer more in order to get a contract on a home. In the Chicago area, competition for homes increases in the warmer months. When searching between April and October, Chicago home buyers will want to make sure they are shopping in a price range that provides a cushion.   

Ask a Professional 

While the two factors above play into consideration, ultimately, the advice you receive from your real estate agent will best help you decide when to offer over asking. Your real estate agent creates a strategy based on the home itself, local market insights, and professional experience. Remember that, while no one particularly likes being advised to pay more than they thought for something, your real estate agent acts in your best interest, giving you the highest chance at securing the home you want.  

How Much Will My Payment Increase? 

When offering over asking, the increase in your monthly principal and interest payment will be determined by how much more you offer (regardless of the original price) and how much you are putting down on the home. Here are some examples in which your interest rate is 6.75% and you offer $10,000 over asking: 

• If you put 5% down, your mortgage payment will increase by $62  
• If you put 10% down, your mortgage payment will increase by $58 
• If you put 20% down, your mortgage payment will increase by $52 

As you can see, the more you plan to put down, the less your payment increases when you increase your offer price. Now, let’s take a look at different offer increases with the same down payment of 10% across the board:   

• If you offer $20,000 more, your mortgage payment will increase by $117
• If you offer $30,000 more, your mortgage payment will increase by $175
• If you offer $40,000 more, your mortgage payment will increase by $234

These three examples also factor in an interest rate of 6.75%. And, speaking of interest rates, there are ways a mortgage banker can help you lessen the impact of an increase in offer price… 

How Does it Affect My Mortgage? 

Based on the general idea provided through these examples, you can determine whether, in some situations, increasing your offer may not be that significant, or you may find that in others, going over asking could be prohibitive. That is when you discuss solutions with your mortgage banker. 

The list of solutions and their combinations is so extensive and tailored to a buyer’s unique situation that it is beyond what online research can supply. So, make sure you reach out to a real-life, knowledgeable, and experienced mortgage banker to discuss your situation. In the meantime, here is one overall concept to consider: 

Lower Rate, Less Impact

The lower your interest rate, the lower your monthly payment. Your mortgage banker can provide a personalized recommendation on how to lower your interest rate, but for this illustration, we’ll use switching loan programs as the solution. 

Government-sponsored loans, like FHA Loans, often have lower interest rates than conventional loans. FHA Loans have their pros and cons, but in the case of trying to keep the monthly principal and interest payment down when offering more, you and your mortgage banker may decide that the lower interest rate is the pro that outweighs the cons. Here’s one scenario:  

1. You were pre-approved for a conventional loan with 5% down at an interest rate of 6.75% 
2. If you offer $20,000 more than the asking price, your monthly payment goes up by $123
3. Instead, you get pre-approved for an FHA Loan with 5% down at an interest rate of 6.55% 
4. When you offer $20,000 over asking, your monthly payment would only go up by $83

By making the switch to another loan program, the lower interest rate allows you to plan on offering more with less of an impact on the monthly budget. (Reach out to a mortgage banker to hear about more solutions like this!) 

What Should I Do Before Offering Over Asking? 

Just as you need a pre-approval before starting the home search for the best chances of finding a home, you’ll want to get pre-approval specific to the home you are putting an offer in on. If you find a home that’s already at the top of your budget and your real estate agent suggests an increased offer, the next call should be to your mortgage banker for a new pre-approval. 

When you have a real estate team on your side, your agent and mortgage banker will work together to figure out what you should offer and how you can afford it. You’ll never be in the dark before making an offer on a home that is over asking. 

Chicago and Nashville Home Buyers

United Home Loans has offices in and around Chicago and Nashville. If you’re buying in the area, we can offer local insights on what your home buying experience will be like, have access to more loan options than most brokers and banks, and can match you with trusted, expert real estate agents. The end result is a clear path to your dream home!