WHAT ARE THEY AND SHOULD YOU ASK FOR THEM WHEN PURCHASING A HOME?
The whole mortgage process can have many components. I’m going to address the closing costs area first. Closing costs are fees associated with your home purchase that are paid at the transfer of the property from seller to buyer. Some of the fees associated with closing costs can be………
- Loan Origination fee
- Attorney fee
- Appraisal fee
- Escrow fees – property taxes and homeowners insurance
- Mortgage points (aka Discount Points)
- Recording fees
Closing costs can average between 2% – 5% of the home purchase price. When purchasing your home, coming up with the down payment can be challenging enough, now you will need to have set aside extra funds for closing costs. If you’re tight on additional funds for closing or you are trying to lower the amount you have to bring to closing, asking for seller concessions can help elevate some or all of these expenses.
What are Seller Concessions:
Seller concessions are when the seller agrees to pay for some or all of the buyer’s closing costs. Monies paid by the seller, usually from the proceeds from the sale of the home, to cover the buyer’s costs. Seller concessions can also be referred to as Seller Contributions and Seller Paid Closing Costs. Asking for seller concessions can be a powerful way to save on your closing costs. When asking for concessions you can ask for a percentage of the total costs or a specific dollar amount. This can help minimize the costs associated with the loan. Seller concessions are allowed on all major loan types but there are caps on how much a seller can offer as a concession in a real estate transaction: (See chart below for details)
USDA Loan Up to 6%
VA Loan Up to 4%
FHA Loan Up to 6%
Conventional Loan Up to 9%, depending on the down payment
Pros and Cons of Seller Concessions:
Seller concessions are more applicable in a buyer’s market than a seller’s market. When the market is favorable for a buyer, it can’t hurt to ask for seller concessions. The buyer may need some assistance with buying the home because of limited funds for the down payment and closing costs. If a seller is eager to sell, they may make that part of the deal. It may seem silly not to ask for seller concession when purchasing your home but here are some reasons to ponder. If the market is competitive, you could lose the home or even be declined from your offer with seller concessions. The seller will usually pick the offer with the least amount of complications for them. Meaning, the offer that provides them with the most amount of money from the proceeds from the sale of their property. In a hot market, a less attractive offer could hinder your chance of getting the home you desire.
Overall, I recommend consulting with your real estate agent when thinking about asking for seller concessions. The agent can research local sales and what type of housing market we are in. Remember the type of loan you will be applying for will have to be considered too.
Please reach out to me by phone or email so we discuss your home financing needs!!