When you\u2019re 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\u2019t 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\u2019s 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\u2019s concessions are just a generous gift.\u00a0 So, what exactly are seller concessions?<\/p>\n
Seller\u2019s concessions are an amount of monies paid toward the buyer\u2019s closing fees. It can also be monies for a garage that needs repair or for a replacement of worn carpets. Seller\u2019s 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\u2019s okay.<\/p>\n
The amount a seller can contribute varies on the loan product. Typically, a conventional loan allows\u00a0up to\u00a0nine percent in seller concessions. USDA loans\u00a0permit for six percent in seller concessions, and VA loans\u00a0permit for four percent in seller concessions. It\u2019s 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.<\/p>\n
Sellers are allowed to pay any of the home\u2019s settlement costs. The only thing prohibited is contributing monies for a down payment. But, if you want a seller to pay for you, you\u2019ve got to get it in writing. A Good Faith Estimate comes in handy here. Once you\u2019ve got a pre-approval, you know what program you\u2019ll 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\u2019s always smart to get the actual price of closing costs paid by the seller. This way, you don\u2019t lose out on any monies.<\/p>\n
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\u2019ll get about $7,800 from the seller. But, if you ask for six percent, you\u2019ll 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.<\/p>\n