Why You Should Understand Seller Concessions
Homeowners who are looking to sell their home can help you save thousands of dollars upfront or over the life of the loan. There are two ways that Sellers can help you.
- Use the Seller Concessions to help you pay some/all closing costs
- Use Seller Concessions to buy-down the annual interest rate
When you buy a house, you must think beyond the down payment. You must also consider the closing expenses. Unfortunately, closing costs can be quite expensive, particularly if you’re short on cash for the down payment.
What Are the Seller Concessions?
Closing costs may be covered by the seller.
Once you apply for a loan, Affiliated Mortgage will provide you with a Loan Estimate, which lists all the expenses you will have to pay at closing. You and your real estate agent can then discuss whether you want the seller to bear certain charges. Seller Concessions can also be used to buy down your interest rate, which could save you thousands of dollars over the life of the loan.
Seller concessions benefit whom?
Providing concessions can benefit both the buyer and the seller. In a buyer’s market, concessions can make their home more appealing to potential buyers.
Buyers who don’t have enough cash to cover all their closing fees can benefit from seller concessions. First-time home buyers often have a difficult time estimating the expenses associated with purchasing a home, so seller concessions can help make the property more affordable.
Seller concessions have both advantages and disadvantages.
There are both advantages and disadvantages to requesting seller concessions for buyers. Before you decide whether you want to request seller concessions, you must first understand what they are and the potential consequences.
Seller concessions have advantages.
A home purchase can be made more affordable with seller concessions, as these allow you to pay less at closing in return for lower upfront costs. Closing costs and your down payment usually amount to a few thousand dollars. You may not have to empty your bank account to buy a home if you take advantage of these concessions.
In some cases, agreeing to concessions can be beneficial for the seller. For instance, they may help the seller get their home off the market faster. If the seller is eager to sell their home, they may be willing to pay part of the buyer’s closing costs to hurry up the process.
Seller concessions have several drawbacks.
It may make you a less-desirable purchaser by requesting seller concessions since most sellers prefer to make offers with few strings attached, especially when the market is in favor of the seller.
If there are multiple bids on a home, the seller is unlikely to accept concession requests. Offering a lower price on the home and covering closing costs yourself may be the better option in this situation. This approach is easier for the seller and may increase the chance your offer will be accepted.
Seller concessions can be negotiated.
To negotiate and understand the current housing market, you must request concessions.
In the first place, you must establish whether you’re in a buyer’s market or a seller’s market. This will heavily influence your ability to negotiate for reductions. When a seller’s home has been on the market for a while or when it’s a buyer’s market, sellers are much more willing to make concessions.
When asking for concessions, don’t ask for too much else. The seller prefers a straightforward offer. If you ask for repairs, replacements, and services in addition to concessions, the seller is more likely to reject your offer. If you need repairs, consider lowering your price and covering the closing expenses yourself.
It’s always a good idea to work with a real estate agent if you’re hoping to get a discount. An agent can provide you with information on the local housing market as well as comparable homes sold with concessions. You may use examples of recent seller concessions to motivate your seller to agree to a lower offer or to provide closing costs.
Your real estate agent may help you decide whether you should ask for closing costs or make a lower offer if he or she thinks you’re in a seller’s market.
Are seller concessions unlimited?
Your seller can’t cover all your closing expenses. The amount your seller can pay is contingent on the kind of loan you receive as well as a few other factors.
The seller’s contribution must not exceed your total closing charges. For example, let’s suppose you purchase a house for $200,000 with a conventional loan and a 20% down payment, leaving you with a $160,000 mortgage. Using an average closing cost of 6%, the seller may contribute $9,600. Assuming that your closing costs for this loan are only $5,000, the seller may not offer you more than $5,000 in seller perks.
There are limits to seller concessions. Why?
Why is it pointless to limit seller discounts? Fannie Mae and the Department of Housing and Urban Development, which regulate mortgages, restrict seller discounts to prevent inflation in the housing market.
Suppose you want to buy a house worth $150,000. The seller tells you he’ll sell you the house for $175,000 and that you can keep whatever is left over.
This offer might be a great deal for you, but it will cause local housing prices to rise. When other sellers and agents see what the home sold for, the prices of other homes will go up to match the inflated market value.
Sellers are restricted in how much of their home’s value they can contribute to closing costs, to avoid this cycle causing home and rent prices to rise to unsustainable levels.
The amount that a buyer can discount is limited by the type of loan.
Seller concessions are restricted by loan type. The lesser of the sale price or the appraised value usually determines how much your seller can pay in concessions.
Suppose you want to buy a house for $155,000 and the house is appraised at $150,000. In this case, if the seller concessions are limited to 3%, the seller can contribute up to 3% of the appraised value, or $4,500, towards closing costs.
Contact Affiliated Mortgage to better understand the seller concession limits for common loans.
Non-conventional loans are available.
The limit for conventional loans is determined by how much you want to put down:
The FHA provides loans to borrowers who cannot afford to pay the whole cost of a house at one time.
Up to 6% can be contributed by the seller for all FHA loans.
Veterans Affairs home loans.
The seller must contribute up to 4% on a VA loan. In addition to paying down buyer credit debt, VA funding fees may be covered by seller concessions.
Are seller concessions common?
It is common for there to be seller concessions, but they are more common in a buyer’s market than a seller’s market.
Are closing costs included in the sales price?
You should include any seller concessions in your contract to avoid paying closing costs.
Are seller concessions included in the purchase price?
Seller concessions are not directly paid by the seller out of pocket. They come out of the seller’s profit for the sale.
Should you request seller concessions or a lower sales price?
Seller concessions are the best option for you if you want to have as few closing costs as possible.
The Conclusion: Seller concessions are the closing costs the seller agrees to cover. They can make a home more affordable for the buyer, and they can help the seller close the sale. It’s up to you and your real estate agent to decide whether you’ve got a good chance to obtain concessions. In case the market is suitable, you may be able to request the seller to pay for part or all your closing costs.
About Affiliated Mortgage: We’ve helped thousands of individuals over the last 20 years. Whether you desire to purchase your first house, purchase a used home, refinance your current house, use our convenient mortgage calculator, seek out real estate for sale near you, invest in real estate, or buy investment property, we are here for you. We are America’s trusted mortgage lender. Please get in touch with one of our mortgage specialists immediately. We’ve got you covered.
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