Using Seller Concessions to Help Finance Your Home Purchase

With a depressed housing market on the mend, this presents a great opportunity people looking to buy their first home. As is with most first time home buyers, cash is at a premium. Today we’ll talk about a clause in a real estate purchase used to help called seller concessions.

What are seller concessions?

Seller concessions, like it sounds, is where the seller of a home, “concedes” some of their proceeds to help the buyer pay for mortgage and other closing costs and or prepaids on the purchase of a home. The offer to buy the real estate normally comes with a minor upward adjustment to sales price to allow the seller to get to the same net figure. If done correctly, this can reduce the amount a borrower has to bring to closing by thousands of dollars.
How do seller concessions work?

For example, Michelle, in Kansas City is buying a home for her first time. She wants to buy a home for $200,000, qualifies for a 95% mortgage and has roughly $10,000 to put down. Michelle can offer $204,000 with $4,000 in seller concessions. The math works out as follows:

No Seller Concessions With Seller Concessions
Purchase Price $200,000 $204,000
Closing Costs and Prepaids $4,000 $4,000
Seller Concessions $0 $4,000
Total Due $204,000 $204,000
Loan Amount $190,000 $193,800
Due at Closing $14,000 $10,200

The above example illustrates how offering a higher sales price, but asking for seller concessions to pay for closing costs allows the seller to get to their target sales price but helps the buyer get into their home with the minimum amount of cash possible. The mortgage balance is a little higher but the change to payment is negligible and cash is at a premium.

To conclude, the use of seller concessions will help a buyer purchase a new home when money for closing costs is scarce. This helps credit worthy buyers purchase homes and sellers obtain what they were hoping to get out of their property.

Tips for a Smoother Closing

Closing on a home is not something people do every day. Buying a home is one of the biggest investments a person will make in their lifetime. So it’s important to be prepared when you’re finally ready to close. The following tips will help.

Smoother Closing – Having Things Prepared

Before you sign any mortgage loan paperwork, it’s important that you have thoroughly inspected the property you’re buying. It’s better to know your new home needs a new roof before you sign the papers rather than to discover it once the deal is done. In addition to the required home inspection, many experienced homebuyers also make arrangements with the real estate agent and seller to have a trusted friend or repairman take a look at the property for a second opinion about any necessary repairs.
Continue reading