Here is a wonderful tip for a homeowner who needs to make a specific amount when selling their home. Actually, it it is probably not so new to many of the experienced real estate agents, but it will help the newbies and those needing a refresher.
The sellers’ net profit will not change if they lower the sales price by three-to-six percent or pay three-to-six percent of the buyer’s closing costs with a full-price offer.
Here’s a quick illustration. If you put in a purchase offer to buy a $400,000 home in the Denver metro area, you could offer 95 percent of the sales price, or $380,000. Or you can offer $400,000, with the sellers paying five percent of the purchase price toward closing costs.
If the sellers accept your $380,000 offer, and your closing costs equal three percent of the purchase price, you pay:
- $19,000 down payment
- $11,400 closing costs
- Your principal and interest payment using today’s 30-year fixed rate of 4 percent, is $1,814 per month.
- Total out of pocket for buyer is $30,400. Seller gets $380,000 minus sales commission and seller’s closing fees.
If you can come up with this amount, it’s a good alternative. But what if you can’t?
You can request that the sellers pay five percent of your closing costs (your loan program must allow this) as opposed to reducing their sales price by five percent. So if you make a full price offer, and receive five percent in seller-paid closing costs, you get this:
- $19,000 down payment
- $0 closing costs
- With the extra two percent in seller concessions. That may get you a lower interest rate of 3.625.
- Your principal and interest payment at 3.625 percent is $1,824.
- Total out of pocket for buyer is $19,000. Seller gets $380,000 minus sales commission and seller’s closing fees.
So by choosing this method the buyer saves $11,400 in closing costs, and even better, you get a lesser interest rate and monthly payment. That sounds a lot better anyway you slice it.
Seller Concessions Differ By Loan Program
Seller paid closing costs not only vary by location, but also by the type of loan program for which you’re applying. FHA, VA, Conventional, and Jumbo loans have different aspects.
Your real estate professional should be able to assist you with guidance in this area. But when it pertains to your money, it helps to know and understand the facts ahead of time.
It is important to know how much a seller, or any interested party can contribute to a buyer’s closing costs. The following are the maximum allowable seller concessions by loan program:
Other loan programs, including portfolio loans, jumbo loans, non-qm loans, second homes and 1-4 unit investment rentals have their own specific guidelines regarding seller contributions. Simply ask your mortgage professional about their policy for the loan program you are applying for when you get a mortgage quote.
Negotiate The Closing Costs
Now that you know asking the seller to pay for some, or even all, your closing costs for a full price offer is not uncommon, give it some consideration.
For those thinking of selling their home soon, being flexible about paying some or all of the buyer’s closing costs, can maximize the quantity of prospective home buyers.
It’s worth noting in a seller’s market or strong housing market that sellers are not going to just pay for your closing costs and not benefit from it. More than likely, they will build their concession into the sales price.
As long as the home appraises for the sales price or higher, it is a good deal.
This is where the right real estate agent can be a great resource for you