Home buyers are required to put a down payment. FHA mortgage loans require a minimum of a 3.5% down payment and conventional loans normally require a minimum of a 5% down payment. Besides the down payment are closing costs. Home buyers are responsible for closing costs which can be as much or more than the down payment. However, there are ways to offset paying for closing costs by either getting a sellers concession or getting a lenders concession towards closing costs.
Sellers concession or sellers contribution towards closing costs
Property sellers can contribute towards buyers closing costs by offer home buyers a sellers concession or sellers contribution towards closing costs. Sellers are allowed to contribute a maximum of 6% of the purchase price towards buyers closing costs. Any left over proceeds cannot go to the buyer in the form of a cash credit.
Lenders concession or Lenders credit towards buyers closing costs
In the event the home buyer cannot get a sellers concession or sellers contribution towards the buyers closing costs and the home buyer does not have funds besides the down payment, the home buyer can get a lenders concession or lenders credit towards his or her closing costs. How this works is for a higher mortgage rate, the mortgage lender will cover a set amount of funds and credit the mortgage loan borrower to cover his or her closing costs. Closing costs include title charges, transfer stamps, attorneys fees, inspection fees, appraisal fees, prepaid closing costs, and other third party charges that is incurred in closing the mortgage loan.
Example Of Lender’s Credit
For example, if a mortgage loan borrower is quoted a mortgage rate of 3.25% for a FHA insured mortgage loan, the mortgage loan borrower can get a lenders concession of $5,000 ( sample figure ) towards his closing costs of $5,000 by getting a higher mortgage rate of 3.5%. Lenders concession or lenders credit towards closing costs is very common for new home buyers who do not want to pay more than they have to but can afford the extra monthly payment.