Buy Your Home With Less Cash Using Seller Concessions

How do you cut your down payment by thousands of dollars?

Many first time home buyers who save up a 3.5% or 5% down payment are surprised to find out that they will often need just as much cash as their down payment to pay for closing costs. Closing costs are the fees and costs required to complete a real estate transaction, including appraisals, title insurance, underwriting fees and numerous other charges of various amounts. While some costs are paid by the seller, most closing costs are normally paid by the buyer.

Have the seller pay closing costs

The good news is that home buyers can use seller financing concessions to have the seller pay for these closing costs. Even better news is that in the last couple of years this technique has been expanded to include every closing cost. Lenders have only recently permitted sellers to pay for items such as real estate taxes, insurance premiums or pre-paid interest, which were usually the largest items.

The list at the end of this article provides current costs that may be paid by the seller as a seller financing concession.

	Example 1	Example 2
	No Concessions	With Concessions
Purchase Price:	$194,000	$200,000
Down Payment:	$9,700	$10,000
Total Closing Costs:	$6,000	$6,000
Seller Concession:	$194,000	$200,000
Total Cash Needed:	$15,700	$10,000
Monthly Mortgage:	$963.89	$993.70

What this table tells you, the home buyer

Assuming that the seller nets the same amount in both examples, this home buyer is in effect financing closing costs and this creates a monthly mortgage payment that is $29.81 more than if the buyer had paid closing costs directly. However, in this buyer's market, many home buyers in this example would actually be able to negotiate both the $194,000 sales prices and the $6,000 seller concession, meaning that there would be no difference in monthly payments.

In the seller's real estate market of the past, home buyers would make an offer on a property and then when it was accepted they would bump up the price to finance closing costs. They were forced to do this because sellers had multiple offers and did not have to bargain with buyers. Because the market was moving up so quickly, appraisers had no trouble

Today's real estate market is absolutely a buyer's market. Buyers can now not only offer a price below the list price but they can also ask as part of their offer that the seller pay their closing costs. Because buyers are negotiating prices down and not bidding prices up, appraisers are not having difficulty getting solid appraised values to support these new lower sales prices.

FINANCING CONCESSIONS THAT THE SELLER CAN PAY:

Financing concessions include, but are not limited to:

• origination fees
• discount points
• commitment fees
• appraisal costs
• transfer taxes
• stamps
• attorneys' fees
• survey charges
• title insurance premiums or charges
• real estate tax service fees
• funds to subsidize a temporary or permanent interest rate buydown

and prepaid items such as:

• interest charges (limited to no more than 30 days of interest)
• real estate taxes covering any period after the settlement date (only if the taxes are being impounded by the servicer for future payment)
• hazard insurance premiums (limited to no more than 14 months)
• initial and/or renewal mortgage insurance premiums and any escrow accruals required for renewal of borrower-purchased mortgage insurance coverage.

For exact mortgage rate quote, help planning your short sale and a free purchase mortgage pre-approval, please email us or call us at 1-877-868-2503.

To see the current mortgage rates, visit our Current Mortgage Rates page.

For a free mortgage pre-approval and an exact rate quote to help you purchase your next home, please email us or call us at 1-877-868-2503.

Our visitors also found the following articles relevent to this topic:

• Mortgage Refinancing FAQs
• Refinance Mortgage Loan
• Four Common Types of Refinance Mortgages