Home buyer leverage with seller concessions

It is often more beneficial to the buyer to obtain a "seller concession" towards the buyer's closing cost than a further sales price reduction in today's market.  This is a very effective buyer's tool that is alll too often forgotten and not used in the purchase negotiations.  On a conventional loan, the seller may credit the buyer's costs up to 6% of the closing costs.  The same holds true on an FHA loan.  On a VA loan, the seller may credit up to 4% of the sales price.  The seller's concession towards the buyer's closing costs and mortgage interet rate is especially relevant when the buyer's debts and income can only qualify the buyer for a set loan payment.  The key here is that the concession can be used to "buy down" the interest rate to qualify the buyer when a simple sales price reduction in the same amount as a concession towards the buyer's closing costs may not.  

Example:

Sales Price:                    $550,000

Down Payment:               $110,000 (20%)

Loan amount/payment:   $$440,000 at 6% interest= $2,638.00/mo.

A price reduction of 6% of the sales price ($33,000) would create a sales price of $517,000 and an 80% loan amount of $413,600. At an interest rate of 6%, the principle and interest monthly payment would be $2,479.  If the sale price was kept at $550,000 and the seller agreed to a 6% of the sales price concession ($33,000), the buyer's total closing cost would be paid (approx. $8,000) and the left over $25,000 could be used to buy down the buyer's interest rate to 4.50% in today's interest rate environment.  The principle and interest monthly payment on the $440,000 loan amount would then be $2,229.

CONCLUSION: The seller concession towards the buyer's closing cost of $33,000 created a loan payment for the buyer of $250 less than if the seller had simply agreed to a sale price reduction of $33,000.  This could easily be the difference between the buyer qualifying and not.  In today's market sellers are willing to consider a lot of creative options to sell their property.  Try this out...it works!