I'm buying a home...Should I ask for a Reduction in Price or Seller Credit

You're ready to buy a home. It's a buyers market and there are more deals than ever.
You've put on your negotiating hat and are ready to start wheelin' -n-dealin'.
You've met with your mortgage broker and you've concluded how much you can afford and हाउ much you're going to invest in a home.

Your realtor has narrowed down your search to a few homes that you like.
It's now time to make an offer। But, you're not sure if you should ask the seller to reduce the price or do a seller credit.

Let's see the difference between the two strategies.
Let's assume that you're going to make an offer on a home listed at $400,000 and you have $40,000 or 10% to put down.
Because of market conditions, you think you can get the seller to come down in price by $20,000.
Let's see how much of a difference $20,000 would make on your payment.

Traditional Sale
$400,000 sale price with a 10% down payment at 6.25% on a 30 year fixed (rate is arbitrary and can change daily) would yield a monthly payment of $2.216.

Price Reduction of $20,000
If you get the seller to take $20,000 less then your monthly payment would be $2.105.
A $20,000 reduction in the sale price reduces the payment by only $116.

Seller Credit of $20,000
Instead of asking for a $20,000 reduction in price, it may make more sense to offer full price and ask for a $20,000 seller credit to pay closing costs.

Here's why it makes sense...
You would use the $20,000 to buy down the rate from 6.25% to 4.5%.
The payment would be $1,824 or $392 less than the traditional approach or $281 less than asking for a $20,000 price reduction.

If you apply the $281 savings toward principal, you would pay off your loan in 23 years....a savings in payments of $176,820 over the life of the loan. This approach ends up saving you an average of $7,652 per year.
This approach can be used all loan amounts and with different down payments (even as low as 5%)