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Lender Credit or Seller Concessions For Closing Costs
Is it easy to qualify for lender credit and/or seller concession to pay for closing costs?
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When qualifying for lender credits or seller concessions to pay closing costs, there are several important things to consider. Let’s take a look:
Lender Credits
What They Are: In exchange for an increase in the loan interest rate, the lender will offer money to help cover the closing fees.
Qualification:
Credit Score: A higher credit score, on average, makes it easier to qualify for lender credits.
Loan Type: Certain loan programs might have specific policies regarding lender credits.
Debt-to-Income Ratio (DTI): A lower DTI increases your chances of qualifying for lender credits.
Impact on Loan: While it lowers the cash you must pay out of your pocket at closing, the increased loan fee may mean a greater portion of the monthly payment due to the larger interest charged.
Seller Concessions
What They Are: Usually part of the purchase agreement, a seller concession is an allowance by the seller toward the buyer’s closing costs.
Qualification:
Negotiation: Seller concessions may be easier to obtain in specific markets. For instance, sellers are more likely to concede during a buyer’s market.
Contract Terms: The exact dollar amount of the desired concession must be indicated in the purchase agreement.
Loan Type: Different loans cap the amount the seller can pay towards a closing cost, which is usually between 3% and 6% of the purchase price.
Market Conditions: In a competitive market, sellers may be less likely to make concessions, while in a slow one, they may be more ready to help.
Tips on Obtaining Concessions or Credits
Engage an Experienced Agent: A real estate agent with good knowledge of the local market can help to negotiate better for seller concessions.
Be Open. One option, which may depend on your wider approach to closing dates and other terms, is paying the seller’s concessions.
Dealing with Lenders: Mention to your mortgage broker or lender upfront about the possibility of any credit items that the lender may offer, and based on your profile, advise which options are available to you.
That said, it is not “easy” to qualify for lenders’ credits or seller concessions. However, it is possible with the right approach and conditions. Awareness of barriers, such as finances and market dynamics, will help you navigate this process.