Congratulations! You've found your dream property and negotiated a winning price with the seller. But before you celebrate, there's one more tactic to consider: seller credits! These financial concessions from the seller can significantly improve your buying experience by putting money back in your pocket at closing.
Seller credits offer flexibility and can be used in various ways to benefit you. Let's walk through their uses and then we will share how you can ask for them.
1) Conquering Closing Costs
Closing costs can be a significant hurdle, often adding thousands of dollars to your upfront expenses. These can include loan origination fees, appraisal fees, inspection fees, title insurance, attorney fees, recording fees, property taxes, repair costs (if applicable), and even prepaying your homeowner's insurance policy.
By negotiating a seller credit to cover these closing costs, you can effectively roll them into your loan amount. This reduces the amount of cash you need to bring to closing, making the process less stressful and financially smoother.
2) Mastering Your Mortgage: Leverage Seller Credits for Lower Interest Rates
In today's market with rising interest rates, every point matters. Here's how seller credits can be a game-changer:
Interest Rate Buydown: This allows you to use the seller credit to buy down your interest rate with your lender temporarily. For example, a 2-1 buydown reduces your interest rate by 2% for the first year and 1% for the second year. This translates to lower monthly payments throughout the initial loan term.
Paying Points: Another option is to use seller credits to pay points towards your mortgage. Each point typically reduces your interest rate by a certain percentage (usually 0.25%). While this upfront cost can be significant, it can lead to substantial savings on your monthly payments over the entire life of the loan.
3) Potential Down Payment Support
While less common, some sellers might be willing to contribute towards your down payment through seller credits. This can decrease the upfront cash you need to secure the property, making homeownership more attainable.
Real estate investors can also leverage seller credits strategically. By negotiating for seller credits to cover closing costs or repairs, investors can reduce their out-of-pocket expenses at closing. This frees up capital that can be used for other investment opportunities or to improve the property before during ownership.
The Strategic Bump: Securing Seller Credits
There are a few ways to get seller credits into your deal, but the easiest way is by planning to incorporate them at the beginning of the offering process.
While negotiating the purchase price, consider proposing a slightly higher amount. This creates wiggle room to request seller credits for the difference. For example, if the seller's ideal price is $500,000, propose $510,000 with the understanding that the seller offers a $10,000 credit at closing. This way, you secure the property at a price the seller is happy with while gaining the benefits of seller credits!
Remember, negotiation is key. A skilled real estate agent can guide you in crafting strategic offers that leverage seller credits to your advantage. By understanding the power of seller credits, you can gain a significant edge in the home-buying process and keep more money in your pocket!
This article was written by Ryan Emrich, Co-Founder at Blue Canyon Equity Partners, LLC.