The American dream of homeownership can feel increasingly out of reach as mortgage rates climb. Higher rates lead to higher mortgage payments because they increase the amount paid in interest over the life of the loan. So naturally, buyers seek ways to lower costs.
But while a lower purchase price is always appealing, seller concessions are another strategy that can improve affordability.
What exactly are these, though, and how are they beneficial to both sellers and buyers?
What are Seller Concessions?
Seller concessions are financial contributions from the seller to a buyer. The objective is to lower the overall expense for the buyer as an incentive to purchase the home.
Types of Seller Concessions
There are different types of seller concessions, each catering to specific needs. Here are some of the most common:
• Closing Cost Assistance: This is the most general type of concession, where the seller contributes a set amount to the buyer’s closing costs. The specific amount is negotiable. Closing costs are lender and third-party fees paid on top of the purchase price, such as the appraisal, title insurance, and loan origination fee.
• Temporary Rate Buydown: This is when the seller prepays to reduce the buyer’s interest rate for the first few years of the loan. This can temporarily reduce the buyer’s monthly payments.
• Buyer Repairs: In some cases, sellers may agree to cover the cost of certain repairs identified during the inspection. This is attractive to buyers who want to avoid upfront repair costs.
It’s important to note that not all loan programs allow for unlimited seller concessions. Consult with your lender and real estate agent early on to understand what’s possible. They can negotiate the best deal for you.
How Seller Concessions Benefit Homebuyers
Financial relief is the most obvious benefit for homebuyers. Seller concessions can free up money buyers would have spent otherwise. Buyers can choose to save or spend this money elsewhere. Some might choose to use it for a larger down payment, which lowers the loan amount and possibly reduces the amount paid for mortgage insurance, if applicable. Both factors can contribute to a smaller monthly payment.
Additionally, buyers might put the savings toward moving expenses or use it to create a financial buffer in the early months of homeownership.
Seller Concessions Benefit Sellers Too
Concessions aren’t a one-sided win for buyers—sellers can also benefit from this strategy. In a competitive market, offering concessions can make a listing stand out. This is particularly true for properties that have been sitting on the market for a while.
By sweetening the deal with closing cost assistance, sellers can incentivize buyers to submit offers and potentially expedite the sale.
Some concessions—such as a temporary interest rate buydown—can actually save sellers money in the long run. These buydowns can attract buyers and lead to a quicker sale, possibly saving the seller time and money (since they don’t have to carry costs associated with an empty property).
Conclusion
Seller concessions are a valuable tool for bridging the affordability gap. With that being said, it’s important for buyers to include any requested concessions with their initial offer. This transparency can prevent delays later in the negotiation stage.
For more information on how to use seller concessions when buying a home, contact the loan experts at FirstBank Mortgage.
