What are Seller Concessions?

by seacoast_ashley 2. February 2014 06:16

Seller ConcessionsWhen a buyer purchases a home with a mortgage, they are required to pay a certain amount of closing costs on top of the actual purchase price of the home. Some buyers discover during their home hunt that they have enough money saved for a down payment, but not for the closing costs. Rather than wait to save more money to purchase a home, they’ll request the seller to pay these closing costs. This monetary contribution is called a seller concession or seller contribution and is only applied to closing costs.

Why would a seller agree to pay concessions? It’s really an accounting game as no cash actually exchanges hands. The concession is added onto the purchase price of the home. If the home costs $200,000 and the closing costs are $8,000, the purchase price becomes $208,000. Then, the $8,000 concession is deducted from the seller net proceeds on the HUD-1 Settlement Statement and given back to the buyer. But the seller concessions must be agreed upon at the time the contract is signed, because adding them in later can be a hassle.

Why wouldn’t the seller agree to pay concessions? The appraisal may not compensate for the extra money. Without the concessions, the home would have to appraise at $200,000. With the concessions, it would have to appraise at $208,000. If it doesn’t appraise that high, the deal falls apart. The lender will not loan for more than the home is appraised at. That’s why it’s important to not ask for seller concessions unless you are sure it has a chance of appraising at the elevated contract price.

It’s also important to note that some loan programs have limits on the amount of concessions a seller can pay. Currently, FHA will allow the seller to contribute up to 6% of the price, VA will allow up to 4% of the price, and conventional will allow up to 3%. USDA has no cap. But this may change. Always verify with your mortgage consultant how much the seller can contribute before finalizing an offer.

If you have any questions about seller concessions, ask your Sea Coast agent. Don’t have an agent, find one today.

Meghan Riley

What is Included in the Closing Costs?

by seacoast_ashley 2. February 2014 05:34

When you obtain a mortgage, you need to pay fees - charged by lenders and third parties – related to the purchase of the home. These fees are called closing costs and are included on top of the cost of the home and down payment.

Closing Costs - House Calculator

Here is a list of common closings costs:

  • Credit Report Processing Fee
  • Loan Origination Fee (for processing loan paperwork)
  • Costs of Inspections (Termite, Home, etc.)
  • Appraisal Fee
  • Survey Fee
  • Property Taxes
  • Private Mortgage Insurance
  • Prepaid Interest
  • Prepaid Insurance
  • Discount Points
  • Title Insurance
  • Title Search
  • Escrow Deposit
  • Notary Fee
  • Courier Fee
  • Wire Fee
  • Underwriting Fees
  • Government Recording Fees

Closing costs typically run about 2-4% of the purchase price. So, if you purchase a home for $300,000, closing costs will run between $6,000-$12,000.

Within 3 days of applying for a loan, lenders are required by law to give borrowers a Good Faith Estimate (GFE). The GFE will list all of your closing costs, but these may change by the time of closing. Legally, they are allowed to change by 10%, so it’s important you take that into account when budgeting your purchase.

Before you sign the papers on your home, you will receive a HUD form that lists all of the fees to be paid. If the closing costs are higher than you expected and can afford, you can walk away from the deal. But, be warned, you will likely lose money, especially your earnest money.

If you are concerned about paying extra out of pocket for the closing costs, there are mortgage programs that do not require you to pay them. In this case, the lender will either raise the interest rate or fold the costs into the total purchase price of the home. Make sure you discuss this with your mortgage consultant.

If you have any questions about closing costs, ask your Sea Coast agent or mortgage consultant. Don’t have an agent, find one today.

Meghan Riley

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