By Kyndal Mcallister, Mortgage Loan Officer
Have you ever wondered about closing costs on a purchase transaction? Have you ever needed help paying them? One of the ways to get help on purchase transactions is through seller concessions. Seller concessions are a portion of the proceeds from the sale of the home that the seller can choose to give to the buyer. It is limited to a certain percentage of the purchase price based upon how much money you, the buyer, is putting down for down payment. Essentially, the more you put down the more they can give you, but you have to remember that at the end of the day it is their choice to give you some of their proceeds. When making an offer it is generally more attractive when you are not requesting seller concessions, but that doesn’t mean that you shouldn’t ask. Here are some pros and cons to help you decide whether you should or shouldn’t ask.
Reduction of Closing Costs – it will reduce the amount of money that you have to bring to the table.
Increase in Purchase Power – since seller concessions can reduce the cash you have to bring to the table, you can use the set funds that you have available to purchase a larger property. For example, if you are buying a $100,000 house, the closing costs are $10,000, and you have $10,000 and your available buying power is used up. if you are looking to buy a $130,000 property, the closing costs are $13,000, you have $10,000, and the seller gives you $3,000 in concessions you are now eligible to purchase the $130,000 property. The seller concessions covered the gap making it now possible for you to be able to purchase that property.
Limited Available Concessions – Depending on the loan product that you are qualified for, it will limit the amount of concessions that are available to you. Additionally, the amount of money you put down, depending on the program you are qualified for, will result in you being able to receive 3%, 6%, or even 9% of the purchase price.
Multiple Offers – If there are multiple offers on a property it makes it more difficult for your offer to be accepted. To paint the picture for you, if one person puts in the offer for $100,000 and you want to make the same offer but you ask for seller concessions of $3,000 the seller is more likely to accept the first offer because if they accept your offer for the same purchase price then they stand to lose $3,000 in profit from the sale of their property. The more you ask the less they get.
Asking for seller concessions can be beneficial, or cost you the house in the end. Work with your lender to discuss the best options and move forward from there.