To Their Credit: Home Sellers Give Closing Cost Help

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If there’s one thing home buyers need, it’s cash. Now, experts say conditions in many markets are shifting, and buyers are finding cash from a surprising source: the seller.

A growing inventory of homes for sale in many markets is prompting, “More sellers to accept offers with seller concessions,” observes Jennifer Beeston, vice president of Guaranteed Rate, a nationwide lending firm.

In past months, severe shortages of homes on the market meant it wasn’t uncommon for buyers to drop all requests from their purchase offer, says Ralph Schumann, past president of the Illinois Real Estate Lawyers Association.

Traditionally, buyers who requested closing cost assistance weren’t unusual. Closing expenses are fees from the mortgage lender plus other charges that can run a few thousand dollars.

“The typical ask is in the $3,000 to $5,000 range,” says Dave Shalabi, a broker at RE/MAX Synergy, Orland Park, IL.

The question then arises: Why won’t the sellers just accept a lower price instead?

That’s because in the unique math behind mortgage financing, closing cash is a better help to the buyer because it allows more of the buyer’s money to be used for the down payment. Also, rate offers are incrementally better for larger down payments.

Consider the buyer of a $200,000 home who diligently saved a ten percent down payment of $20,000. Reducing the price to $195,000 still means he needs $19,500 for ten percent down, which is just $500 less, but he’d probably be making a down payment for much less than ten percent since $3000 of his savings would be needed for closing.

Buyers sometimes ask for other concessions, but closing cost assistance is the most common. For instance, Schumann says if a buyer asks for credits at closing to cover repairs for problems uncovered in the home inspection, lenders may not make the loan.

Closing costs assistance from the seller to the buyer rarely exceeds three percent, although different mortgage programs have different limits, concludes Beeston.

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