There are many different costs and fees involved in buying a home. If a buyer is not careful, they can really start to mount up. Therefore, smart prospective buyers will often ask for concessions from the person selling the home. They do this in order to keep down expenses.
Closing costs can really become overwhelming. They are rarely budgeted for when eager buyers scrape together their down payment. Rather than let a good buyer walk away from the table at the last minute, sellers might be willing to offer the concession of paying some or all of the most common fees involved in finalizing the sale.
There is a large amount of paperwork involved in selling a home. In some cases, it might be cheaper for the seller to do it than the buyer. This will also generate good will.
Seller concessions might also include little perks around the house that won’t cost too much but can move the sale along for a great price. Replacing the old appliances or taking up the gross old carpeting and putting in wood flooring would be good examples.
Concessions can sweeten the deal. However, there are limits as to the number of perks allowed in relation to the type of mortgage the buyer is taking out. A conventional mortgage allows from 2% to 9% in seller concessions. A VA mortgage permits up to 4%. FHA and USDA loans allow up to 6% percent in seller concessions.
These concessions mean the expenses are all being rolled into the mortgage. The buyer does not need to pay in cash. Certain concession will also add to the value of the house, making the final appraisal and sale a lot easier.
For cash-poor buyers who have underestimated how much they needed to close the deal, the seller can pay any of the settlement costs. They are not allowed to contribute to your down payment. They will also not be allowed to pay for your mortgage application fees or credit check fees.
Adding It All Up
When you have moved far enough forward in the process to get pre-approval on a mortgage, you will have a good idea of who the lender is, how much you can borrow, and what the closing costs will be. Some realtors will ask for seller concessions in round figures, such as 6% of the closing cost and other fees.
However, it is important to note that if you are living in a low tax area and buying only a modest home, that would actually cause you to lose money in the long term. Why take 6% and therefore give up 6% of the mortgage to the seller when the fees are really only 3%? It’s a case of buyer beware, knowing what things actually cost, and itemizing them rather than making blanket concession deals.
The Bottom Line
Seller concessions help grease the wheels of a house sale, but they are certainly not a gift. Be clear about all the title deeds required, fees and documents. and make the deal based on what your closing costs actually are.