Home prices have risen across the country in comparison to just a mere few years ago. Despite that, here is how you may still be able to obtain a seller credit for closing costs…
A credit for closing costs involves the seller of the property you’re interested in buying receiving less net proceeds in exchange for crediting you monies at closing. For example if you’re making an offer to buy a home at $450k and you’re asking for a credit for a $10k closing costs credit your offer is really $440k as the additional $10k transfers from the seller to you at escrow. Also known as a seller concession, a credit for closing gets your foot in the door with less of your own funds needed.
Let’s quickly rewind the clock three years ago for a moment. The year was 2012, unemployment was over 8%, consumer confidence was bleak, and doom and gloom rattled the housing market. Home buyers were in the driver seat, and sellers’ were practically begging for offers. During this time, obtaining seller credits were not only reasonable, but very common. Banks holding foreclosed inventory were well known at the time to offer concessions to offload homes to meet year-end quota expectations for shareholders. Fast forward to 2015, unemployment has dropped significantly, and consumers are feeling more optimistic about their financial health. The economic pendulum swung so far low, this snap-back reaction is almost normal, as demand is driving prices.
Housing tip: the two factors that drive housing prices bar none is low unemployment coupled with beefy job growth.
How To Get A Seller Concession For Closing Costs
Buying power is a big factor in this. The more house you can qualify for on paper, the more wiggle room you have in supporting a higher price, possibly generating a seller kickback towards your cash to close. Essentially, you are financing the fees by virtue of paying more for the home. If successful, you pay more for the home in these areas:
- sales price- due to property tax obligation
- loan amount- function of price paid for the home
*Generally, you will always pay less for the house without a seller concession of any kind. This also means your fixed housing costs will be lower in such a scenario.*
If you don’t have the cash, you can debt service difference, but the cost of that debt servicing can be rather costly both on terms of payment as well as interest on the term of the loan especially if funds are tight going in. This is why it is precisely important to be as strong as possible on paper on a home you can actually afford when getting preapproved.
Two Opportunities To Request The Concession
Upfront – Upon submitting your offer with guidance of your buyer’s agent. This strategy is more effective on homes with longer days on market (DOM). If a home has been sitting for a while, stagnating, without offers, the price sought often enough, is simply too high. It is more difficult on brand new listing as other strong offers may be coming in, possibly bidding yours out.
After Inspections- let’s come to the reality most buyers and sellers are opportune in nature. Each party will attempt to stretch their dollars as far as they will go at the expense of the other. The buyer wants the best deal on the home low price while the seller wants the maximum price they can obtain for their home. Both objectives are at odds with each other.
As an informed home buyer, it’s also important to understand, while you can ask for a credit for closing costs, you can also request a reduction in the house price as well. A prime example is you’re in agreement to buy that $400k, and your appraisal comes in at $385,000. You could ask for credit for closing costs, but, if you have the cash, reducing the house price to match the appraised value might be a better approach which means a lower fixed housing payment. The sky is the limit.You can ask for a credit for closing costs and a reduction of the purchase price, but in most cases you may have to pick credit for closing or price concession, not both. Talk to your mortgage and real estate professional about which is the most beneficial for you.
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