What are sellers concessions?
Many home buyers have limited funds when buying a new home. The minimum down payment needed on a home purchase is 3.5% on a FHA mortgage loan, a minimum of 5% on a conventional loan, and 0% on a VA mortgage loan. Closing costs can run more than the down payment need and sometimes cost thousands of dollars. The seller can contribute up to 6% of the purchase price towards closing costs. This seller concession is very important in many home purchase deals and sometimes a necessity to make the deal happen if the buyer does not have extra funding besides the down payment.
What can sellers concessions be used for?
The seller concessions can be applied towards discount points, title charges, appraisal costs, mortgage loan origination fees, processing and underwriting fees, attorneys fees, inspection fees, real estate and insurance escrows, transfer taxes, and other costs associated with closing the mortgage loan.
Seller contributions towards closing costs is a great program for both the buyer and seller. For the buyer who is limited with funds, having the seller pay the closing costs will make the home purchase possible. For the seller who is offering the concession towards closing costs, it makes the sale of his home possible and ultimately, the seller gets his net price from the sale of the house. A seller may not reduce the price of the house as much as he could have if he needs to offer a seller concession. Bottom line is that the seller does not lose anything because the concession he is offering is blended into his net price of the house he is selling.
Closing costs and sellers concessions
Before you start looking for a new home to purchase, make sure you consult with a mortgage broker. You should get pre-approved and see what is the maximum loan amount you qualify for. Your mortgage broker will do a full credit analysis for you and will tell you exactly how much money you need as a down payment and what the closing costs will be. You will get a ball park dollar figure on your closing costs and it is not going to be cheap. Your closing costs can be more than your down payment, depending where you are buying your home. Some states costs much more than other states due to tax stamps and other state fees. If you do not have enough money besides the down payment, you would need to get a seller concession to be able to make your home purchase a reality. The majority of home sellers have no problem in offering seller concessions but you need to make sure your realtor request the seller concession. The seller contribution needs to be written on the real estate sales contract. Make sure your realtor and mortgage broker communicate and your mortgage broker talks to your realtor prior to making an offer.