The real estate market is shifting. Some San Diego home sellers challenged by this change are looking for creative ways to attract buyers. In addition, some home buyers are asking for more concessions from sellers than ever before. Seller concessions are a useful tool in real estate. Used correctly, it can benefit both buyer and seller.
With higher interest rates, some San Diego home sellers are open to helping home buyers with financing costs by covering the upfront fees on a mortgage 2-1 buy-down, where a San Diego home buyer gets a home loan and the first year has a 2% reduction in interest. For example, if a buyer obtains a mortgage at 6.25%, the first year, the buyer pays an interest rate of 4.25% and 5.25% the second year. Since interest rates are expected to continue dropping, a buyer can then use the rest of the funds going toward the rate drop to use towards a refi, essentially covering the fees.
Other seller concession can be used in lieu of seller repairs or upgrades, saving out of pocket cash in an uncertain market. Buyers can also benefit from “financing” some of their own out-of-pocket costs for specified fees and charges.
However, there are limits to what the lender will accept for seller concessions and understanding this ahead of time can save time and frustration.
Here is a snapshot of the most common loan types and concessions possibly allowed (always check with your lender).
Conventional (Fannie Mae/Freddie Mac):
25% down payment – 9% concessions
10-25% down payment – 6% concessions
<10% down payment – 3% concessions
FHA :
6% maximum concession VA:
4% closing costs concession
USDA:
USDA allows the seller to pay all the closing costs and prepaid for the buyer with no percentage limit. Other restrictions and considerations apply, so speak with your lender.
Seller concessions are a great way to save cash on both sides. Used properly, it can be a great tool to put real estate transactions together in a challenging market.
Leave a Reply