Great news for homebuyers: we’re shifting to a buyer’s market so seller concessions (asking sellers to pay part or all a buyer’s closing costs) are once again possible. With the higher interest rates, buyers can balance out some of the increased rate cost with seller concessions.
Here’s How Seller Concessions Can Be Helpful
Asking a seller to pay concessions could help lighten the cash to close in a buyer’s market. The seller may also offer to pay some of a buyer’s closing costs to close the deal, reducing the amount of cash you will need to bring to the closing table. You can use seller concessions to pay down interest rate points, lender fees, appraisals, and any other closing expense. Not only are seller concessions helpful for the buyer, but they can be helpful for the seller as well. A seller might offer concessions so that a buyer will agree to buy a less than perfect home. The concessions in this case would go toward reducing closing costs so the buyer could use that extra cash toward home upgrades.
Maximum Percentage of Seller Concessions
-VA Loan: Allows for 4 percent seller concessions
-FHA Loan: Allows for 6 percent seller concessions
-Conventional: Tiered system. If down payment is less than 10 percent, max percentage of seller concessions is 3 percent. If down payment is 11 to 25 percent, max percentage of seller concessions is 6 percent. If down payment is more than 25 percent, max percentage of seller concessions is 9 percent.
Maximum seller concessions range from 3 to 9 percent of a mortgage so they have the potential to save a homebuyer thousands of dollars.
Here’s An Example
-You find a home you love and submit an offer for $450,000
-In the offer, your agent requests $10,000 in concessions to cover some closing costs on the loan you were pre-approved for
-The seller counteroffers with a price of $460,000, factoring in the $10,000 in concessions
-You agree to the counteroffer and go under contract to purchase your new home.
*Important to note that seller concessions don’t provide any cash back at closing, and all concessions must be agreed upon in writing on the purchase and sales contract.
In today’s buyer’s market, it is possible that seller concessions could reduce some or most of your upfront cost of buying a home. For many homebuyers, this makes it much easier to purchase. Get in touch with a loan officer at HomeTown Lenders to start the pre-approval process!