Can the Seller Contribute to My Closing Costs or Buy Down My Interest Rate?
Yes, in many home purchases, the seller may be able to contribute toward the buyer’s closing costs or help reduce the buyer’s mortgage interest rate. These contributions are commonly called seller concessions or seller-paid closing costs, and they can be an important strategy for buyers dealing with today’s mortgage rates.
What Are Seller Concessions?
Seller concessions are costs the seller agrees to pay on behalf of the buyer as part of the purchase agreement. Depending on the loan type, purchase price, lender requirements, and other factors, seller contributions may potentially be used toward eligible closing costs and prepaid expenses.
In some situations, seller concessions can also be structured to help with an interest-rate buydown.
Can a Seller Buy Down My Interest Rate?
Potentially, yes.
A seller contribution may be used toward either a temporary or permanent mortgage rate buydown, if permitted by the buyer’s loan program and lender.
A temporary buydown can reduce the buyer’s interest rate for an initial period of the loan. For example, a 2-1 buydown may provide a lower rate during the first two years before returning to the underlying note rate.
A permanent buydown works differently. Money contributed toward discount points can reduce the mortgage interest rate for the life of the loan, subject to lender and loan-program rules.
Why Should Home Buyers Consider Seller Contributions?
Seller concessions can potentially help a buyer:
- Reduce the amount of cash needed at closing
- Lower the initial monthly mortgage payment
- Purchase discount points to reduce the interest rate
- Structure a temporary rate buydown
- Preserve some savings for moving, repairs, furniture or other expenses
- Make a home purchase more affordable without simply lowering the purchase price
The best strategy depends on your financing, cash available, expected time in the home and the specific property.
Are Seller Concessions Available on Every Home?
Not necessarily.
Seller contributions are negotiable and depend on the transaction. There are also loan-program and lender limits on how much a seller can contribute and how those funds can be used.
That is why it is important to discuss the strategy with your lender before making an offer. Your REALTOR® can then help structure the offer around the options available to you.
A Lower Interest Rate Isn't the Only Option
When negotiating a home purchase, buyers sometimes focus exclusively on getting the lowest possible sales price. But depending on the circumstances, a seller contribution toward closing costs or a rate buydown could provide a different financial benefit.
For example, instead of negotiating a slightly lower purchase price, a buyer might negotiate for the seller to contribute toward eligible closing costs or an interest-rate buydown.
The right choice depends on your numbers.
If you're buying a home in Kyle, Buda, San Marcos, Lockhart or throughout Hays County, I can help you understand the different ways a seller concession might be negotiated and connect you with the appropriate lender to determine what works with your loan.
Thinking about buying a home and wondering how to make today's interest rates more manageable? Call or text Allen Deaver of Asset Realty at 512-791-4543. Let's have a quick, no-obligation conversation about your options and the homes that may fit your budget.
