Sellers may offer or agree to provide monetary concession to buyers at the close of escrow from the proceeds of the sale. These concessions may be used in a variety of ways by the buyer to ease the burden of affordability when buying a home. They are mainly applied to closing costs and/or to buy down the interest rate on the buyer's loan. Seller concessions can NOT be used as all or part of a downpayment. (There are however mortgage options which require far less than 20% down, programs for downpayment assistance, first time buyer help and more so there is hope there as well.)
The homebuying market is not what it was during the COVID era. For some time now concessions have been a norm in many areas around Tucson, but if you haven't bought or sold you likely have no idea they exist. Buyer agents have been writing and negotiating offers including concessions to ease buying in challenging times, and it may be possible for you to take advantage of them as well!
Lenders have different rules, limits and restrictions as to the use of seller concessions, so you must check with your lender to see what is allowed. There is a limit as to how low one can buy down an interest rate, and the lower rate is usually for a set number of years. This is intended to ease the burden until rates drop and one can refinance to a lower permanent rate. If you plan to remain in the house for a short period of time, discuss that with your mortgage lender to be sure you understand the break-even point so as not to throw away the money invested in the lower interest rate. If you know you will only stay a couple of years it may be advisable to focus the concessions on the closing costs. Relay that information to your realtor so they can incorporate that into your offers to help you keep more cash and/or lower your payments.
Using seller concessions to lower your interest rate will decrease your monthly mortgage payment for a set number of years. You may also choose to use concessions for closing costs or use specified amounts toward each. It is important to NOT request more concessions than you are allowed to use as they will need to be returned through contract addendum. The limit of how much you can request in concessions varies based on the type of loan the buyer is using. If you are using conventional and FHA funding, you can request as much as 6% of the sale price while VA is limited to 4%. It is estimated that 1% of the sale price will usually reduce interest by about 1/4%.
Sellers can benefit in several ways by offering or accepting offers with concessions requests. It may attract more attention to your listing by agents and buyers who are feeling pressure in their buying process. Concessions can make the difference in whether or not numbers work for several buyers who might want to buy their home. Depending on how a house appraises it can also be possible to get a higher offer price to offset the cost of some or all of the concessions.
Real estate agents can help you at every step along the way of buying and selling your home. Concessions are just one aspect of what we might do to make things work out where you have been stuck. Even if you are a year or so out from buying it isn't too early to get on a great agent's website and begin learning about all they can do to help and protect your interests. If you don't already have an agent, reach out or jump on my website and sign on to search, ask questions, discuss your needs, receive listings to meet your criteria and to learn as you prepare!
Deborah Frechette,
Tierra Antigua Realty,
Expert Realtor