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Mortgage Tip: The Seller Concession

Seller Concessions Can Turn A Renter Into a Buyer

Seller Concessions Can Turn A Renter Into a Buyer

Orange County, CA – A mortgage is the biggest financial obligation that most of us will take on in our lifetimes — so every advantage you can carve out is money in your pocket down the road. The seller concession is one of the more common ‘tips’ that you can use to trim your home purchase related costs down.

Getting a Seller Concession

In a seller concession, you ask the seller to pay for specific fees that you, the buyer, is responsible for. With some programs the seller can pay up to 6% towards the buyers closing costs, pre-paid expenses, discount points and short sale processing fees. Why would a seller want to pay your fees? They don’t. The seller must offset this cost. In most cases they will look at the bottom line price being offered and then decide if it’s enough. Like any negotation, they can ask for a higher price in light of the concessions they will give.

For example, let’s say you have a $250,000 home purchase lined up, and the cash you need to close the deal will be nearly$6,000. You might ask the seller to sell you that $250,000 home for $256,000, with the caveat that the seller will then use the extra $6,000 to pay all of your closing expenses. The seller gets what they wanted (the agreed price), and you just effectively reduced your out-of-pocket expenses by $6K.

It’s That Easy?

Of course not — there are a couple of caveats. The big one is that you cannot ask for a seller concession that’s greater than the appraised value of the home. In other words, if that $250,000 home only appraised for $252,000, you can’t ask for a $6k seller concession. You’ll have to make due with only two thousand dollars, and pay the other four out of pocket.

Furthermore, it’s important to note that this doesn’t mean you’ll never pay the $6,000. You’re simply changing how and when you’ll pay it. In fact, you’re going to pay more than you would if you had paid it out of pocket. That’s because you’re adding that amount to your mortgage. This can be a great thing if you don’t have six thousand dollars sitting around or you just prefer to keep your liquid assets at the moment. But it means that it’ll turn into 15-30 years worth of increased monthly payments.

Paying an extra $30/month for 30 years may well be easier on you financially than coughing up $6,000 in closing costs right now. And that’s exactly why the Seller Concession option exists.

Scott Storace

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