An introduction to seller concessions or seller paid closing costs:
A seller concession helps a borrower to pay some or all of their closing costs. The realtor write a seller concession into the purchase agreement usually before placing a bid on a property. Anywhere from 3%-6% (this is a percentage of the purchase price) is a typical seller concession. This is helpful for borrowers who do not have the necessary amount of money to pay for closing costs and for borrowers who would rather hold onto their money instead of tying it up into their mortgage. Example of how a seller concession works: House for sale, asking price 100,000, you place a bid for 98,000 and request the seller pays 3% of your settlement charges. Seller concession amount is equal to $2,940 to be used to pay for your closing costs.
Make sure the real estate agent you are working with knows to write your offer to purchase with seller concessions. It may cause problems and delay the purchase of your new home if the realtor has to ask for an amendment to the original offer to purchase.
Most lenders will not allow you to use the seller concession to profit from a purchase. You can use the money to payoff costs but not get cash in hand at the end of escrow.
If you have little or no cash to purchase your home, seller concessions are a great way to get into a home with little or no money out of pocket. Be sure to speak to both your real estate agent and mortgage professional before signing the papers to ensure it is worded properly.
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