For a homebuyer, there are a lot of enticements that can be broadcast to help them purchase their first or next home with very little or no money out of pocket.  One of the best ways this is accomplished is via Seller Concessions. 

With as much as 6% of the purchase price “given” by the seller, the buyer can effectively avoid certain costs that could creep up that they would normally have to pay themselves.

The definition of a Seller Concession is an agreement between the Buyer and the Seller that the seller will pay for something at closing.  Here are examples of seller concessions:

• Closing Costs – a.k.a – $0 Money Down, No Closing Costs.  The seller can absorb all of the closing costs of the buyer plus some incidentals that appear on the HUD-1 closing document. 
• Rate Buydowns – The seller can pay loan discount points that will bring the interest rate down for the buyer.  This can come in handy if the buyer does not easily qualify for one rate but the points bring the rate to a level where they do qualify.
• Temporary 2-1 Buydowns – this is a strangely popular tool where the rate is bought down in the early years of a long term mortgage to make it more affordable.  This is effectively creating annual payment hikes in the first 2 years.  For instance a 2-1 buydown on 30 year fixed rate mortgage at 6.5% would mean the payments in the first year would be calculated at 4.5%, in the second they would be calculated at 5.5% and for the remainder of the loan they would be at 6.5%. 
• Repairs – this is a tricky grey area.  If there is something structurally wrong with the property the lender will have issues anyway.  A seller can offer monies towards paint, flooring, cabinets, appliances, hurricane shutters, etc to make the place nicer or more up to date for a cash strapped buyer.
• and more…

It is important that the buyer, seller and their agents all work closely with their trusty Mortgage Broker to make sure that the wording of the concession in the contract will not create an issue in underwriting. 

Many times, the sales price actually goes up to make room for the seller concessions.  In a buyer’s market like we have here in Florida, sometimes this is the negotiating tool that can help a transaction come together at a price the buyer and seller can both live with.

To achieve the best results, I recommend the following:

• Sellers – if you have a house that might be a great starter home or attract low or moderate income borrowers, go ahead and prepare yourself for the cost of doing something like this.  It can make negotiating a lot easier if you are ready and willing to concede some funds
• Buyers – be ready to negotiate on this one. Remember that it is harder to get closing costs when you write a very low offer… not that it cannot be done. The best suggestion is to be preapproved for a certain amount so you can go in with a stronger offer.
• Listing Agent – review seller concessions at the listing presentation and then go over how you may even offer or advertise seller-paid closing costs on a full price offer from the get go to make a quicker transaction.  Also discuss the merits of paying loan discount points for a borrower.
• Buyers Agent – Inform your buyer how these work and how it can help them financially.  Also let them know that it doesn’t always mean a lower selling price but that it will still be something they can afford.  Always have your buyers pre-approved on these types of transactions.

For more information about Seller Concessions, First Time Home Buyers or Affordable Loan products, contact me by following this link!

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David A. Podgursky, MBA
TheMortgageGoToGuy.com
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