Buying a home is probably one of the largest transactions you’ll make in your lifetime.
In most cases, you’ll not only be paying for the home but will also be paying interest and many additional closing costs. Because of this, you’re going to want to save as much money as possible in the transaction.
Seller concessions is one way that buyers can save some money. In some cases, this can be a substantial savings.
Here is some helpful information on seller concessions and how you may benefit from them.
What Are Seller Concessions?
Seller concessions are also referred to as seller contributions because that’s exactly what they are. They’re contributions the seller agrees to pay during the closing of the mortgage loan.
Home buyers often forget, or may not even be aware of, the many closing fees involved in the home buying process. As the loan closing approaches, they’re reminded that there are many additional fees many of which must be paid at the closing.
In some cases, these fees may be added into the loan. However, if they can’t be added in, it can result in the buyer being forced to cancel the sale if he or she can’t afford to pay the fees. Seller concessions can help the buyer complete the transaction because the seller will pay some or all of the extra fees.
What Type of Fees Are Included in Seller Concessions?
Sometimes, buyers have their finances stretched to the limit after they’ve put down a down payment. As stated above, loan closing costs can add up to thousands of dollars.
It’s seldom the same in every transaction. Some of it may depend on state laws regarding real estate purchases, and some of it may depend on the value of the home.
Closing costs may include any or all of the following:
- Title insurance costs
- Transfer fees
- Inspection fees
- Attorney fees
- Loan processing fees
- Appraisal fees
- Fees for credit reports
Is There a Limit on Seller Concessions?
State laws, as well as geographic location, may also dictate the amount or type of fees that may be included in a seller concession.
There are limits as to how much a seller can pay in concessions. The limits are usually between 2 and 9% of the home’s appraised value.
Although the amount can be negotiated between the mortgage broker and real estate agent, these factors can also play a role in determining the amount of the concessions:
- Type of mortgage
- How the home or property will be occupied
- Amount buyer borrows
Advantages of Seller Concessions
The main advantage to seller concessions is that the buyer is going to save money and may be able to purchase a home that he or she might not otherwise be able to afford.
While it appears that seller concessions benefit just the buyer, they can also benefit the seller.
If the seller is eager to sell the real estate, paying for all or some of the closing costs can speed the process along. If the seller is planning to buy a different home, the seller is probably going to be eager to sell.
Paying the concessions can make the original sale go quicker, which will make it possible to purchase the second property quicker.