When you're looking to buy your first home, the number of terms thrown around can seem pretty daunting.
Most of the time, these words are fancy ways of saying you owe more money, but if you hear the words "Seller Concessions," you might want to pay attention.
When you're buying a home through a mortgage lender, your bank is required to disclose any fees associated with purchasing the house.
To use a more familiar term, these fees are called closing costs.
These closing costs are made up of processing fees, inspection fees, transfer fees and more.
They can start to add up pretty fast, and it's not unusual to pay 6% of the home's value in closing costs.
When you're already shelling out $300,000 to buy a home, the last thing you want is to get blindsided by an additional $15,000.
That's where the Seller Concessions come in.
To offer the simplest of explanations: Seller Concessions are when the seller agrees to pay the closing costs on a home.
What most homebuyers don't know is that they can ask for Seller Concessions when making an offer and negotiating a purchase price.
In truth, Seller Concessions aren't quite as simple as the definition given above.
There are a few necessary steps that have to take place before the agreement is finalized.
Here are the main steps involved in getting your own seller concessions:
Here's the easy step - The buyer and seller have to agree on a price for the home. The number doesn't really matter, it's the agreement that's important.
This step sounds a bit strange - After agreeing on a sale price, the buyer and seller make another agreement, this time to increase the sale price above the initial agreed upon amount. For this 2nd agreement, the seller agrees to pay the entire increased amount toward the buyer’s closing costs. This amount can cover all of the closing costs, or only part of them, but it can't cover more than these costs.
When it comes time to pay for your home, the price will actually be artificially inflated beyond the original price by the amount you agreed to in step two. This total amount will go to the seller, but you'll receive a credit on your bill for the amount agreed on for the closing costs.
Starting to sound a bit more complicated?
It's not super simple, but it's not as bad as you might think either, and it has some huge benefits.
There are multiple reasons why home buyers ask for Seller Concessions, as well as several reasons for sellers to grant them.
They save you money. Seller Concessions significantly lower the amount future homeowners have to pay out of pocket by rolling the closing costs of your transaction into your loan.
They speed up the purchase process. Sellers who are having a hard time finding a buyer may wish to use Seller Concessions as an incentive to sell more quickly.
Seller concessions can give first-time homebuyers an opportunity to buy a home they wouldn't otherwise be able to afford. Because it lowers the amount of money a buyer must pay at closing, it makes it slightly easier to make initial payments on the home.
Whew, you made it! As you can see, there's a bit more to it than simply asking for the seller to pay your closing costs, but as we've learned, Seller Concessions might be a tool you can use when buying your home.
They're a great way to speed up the process and can have some great financial benefits, too.
If you're looking for additional assistance or want some more information, fill out our online form to have one of our Home Loan Experts contact you.
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