When you’re in the market to buy a home, the costs of everything can overwhelm you. Everyone knows that need to save up five to 10 percent for a down payment on a home, but many don’t realize that they need a substantial amount to cover closing costs. And with car loans, student loans and a family to support, where does one find the extra cash for closing fees? The simple answer is to just ask the seller to pay these fees for you. It’s that easy. Why would a seller be willing to do this for you? Often, sellers believe that they might not be able to find another qualified buyer. Seller’s concessions are just a generous gift. So, what exactly are seller concessions?
What Exactly Are Seller Concessions?
Seller’s concessions are an amount of monies paid toward the buyer’s closing fees. It can also be monies for a garage that needs repair or for a replacement of worn carpets. Seller’s concessions are a legal way to roll the closing costs into your loan. At times, the seller will counter an offer with a seller concession to reach a deal. It sometimes may drive the contract amount over the sales price, but as long as the house will appraise, it’s okay.
The amount a seller can contribute varies on the loan product. Typically, a conventional loan allows up to nine percent in seller concessions. USDA loans permit for six percent in seller concessions, and VA loans permit for four percent in seller concessions. It’s good news for buyers who happen to be cash poor. If seller concessions were not permitted, it would just have an adverse effect on the whole real estate market.
What Fees Can Seller’s Pay?
Sellers are allowed to pay any of the home’s settlement costs. The only thing prohibited is contributing monies for a down payment. But, if you want a seller to pay for you, you’ve got to get it in writing. A Good Faith Estimate comes in handy here. Once you’ve got a pre-approval, you know what program you’ll be using and an approximate cost of closing fees. Many realtors ask the seller to pay up to six percent in closing costs and other fees. At the same time, it’s always smart to get the actual price of closing costs paid by the seller. This way, you don’t lose out on any monies.
For example, the average cost of a home in the Midwestern U.S. is around $200,000. If you only ask for four percent, you’ll get about $7,800 from the seller. But, if you ask for six percent, you’ll get around $11,000. Why give the seller that extra cash when you can keep it in your own pocket? The difference is a hefty chunk.
Why Seller’s Concessions Work for Buyers
You can’t ask the seller to actually pay for your closing costs. That’s known as inducement, and it’s illegal in most states. Seller’s concessions are a legal gift. And with a Good Faith Estimate, you can come close to the actual closing costs. If you’re seeking to purchase a home, make sure you use a good realtor who is experienced in negotiating seller’s concessions. An experienced realtor knows how to save their buyers money that can be better used elsewhere.