How does 6% seller's concession really work? I get $19200. Is there anyway I can use it all other than closing costs? (sales, insurance)

[geethal]

As I understand, a seller's concession can be only used to cover closing costs and I will not get any of the unused portion back. My offer was accepted for 320K with 6% seller's concession therefore giving me $19,200 towards closing cost. I Plan to go for a very high closing cost around $14,000 including rest of the property taxes and insurance for the year hence reducing my interest rate to 3.75%. Is there anyway I can fully utilize my seller's concession? Please advice. Thank you.

[TomMoser]

How does high closing costs reduce your interest rate. Are you paying discount points?

[geethal]

Yes I meant discount points as if buying back points.

[Elke Mariotti]

If you're getting a seller's concession of 6%, that increases the gross amount/assumed value of the property by 6%. In your case it would be $320,000 plus $19,200.

Your first hurdle is getting the property appraised for $339,200. If that works and the lender agrees, you should be able to use part of the seller's concession to buy down the interest rate.

[TomMoser]

Now I am really confused. I thought that the gross purchase price was 320,000 with a 6% concession, making net to seller of 300,800. If the net to seller is 320,000 then the gross price is 340,426 and the concession is 20,426.

In either case, though, Elke is absolutely correct. The first hurdle is to make sure that the home will appraise for the higher amount. You will want to ask your mortgage company to do the appraisal early in the process. (It is normally the very last thing done). You don't want to find out a week before you are about to close that either you have to come up with more money, the seller needs to lower the sales price, or the deal will fall apart.

Beyond that, there is no real advantage of spending all of the allowed concession except on paying additional points to get a lower rate. Most banks set limits on this so you can only go so far. If there is money left over, just lower the amount of the sales price, the concession, and your mortgage amount by the excess.

[SilverBulletZ06]

Just have them reduce the home price by 14K. Save everyone the trouble.

[Elke Mariotti]

Originally Posted by SilverBulletZ06

Just have them reduce the home price by 14K. Save everyone the trouble.

It's not about the Seller - they're getting whatever price is agreed upon.

Seller's concession is about making it easier/better for the Buyer to get the deal done and roll most if not all closing costs into the mortgage; commonly used when there is little money available for downpayment and/or closing costs.

[geethal]

House was listed at 330K and we really liked it, so settled with 320K. I know if we waited longer could have got a better bargain, but didn't want to loose that house to somebody else.

[Elke Mariotti]

Originally Posted by geethal

House was listed at 330K and we really liked it, so settled with 320K. I know if we waited longer could have got a better bargain, but didn't want to loose that house to somebody else.

So the Sellers concession is added to that as far as the appraisal is concerned. Do you think/know if the house will appraise for about $340K??? If not, then it's back to the drawing board, i.e. you coming up with more $$$... and/or no buy-down of the mortgage interest rate.

[nyliguy]

Originally Posted by Elke Mariotti

So the Sellers concession is added to that as far as the appraisal is concerned. Do you think/know if the house will appraise for about $340K??? If not, then it's back to the drawing board, i.e. you coming up with more $$$... and/or no buy-down of the mortgage interest rate.

Doesn't the home just need to appraise for the mortgage amount not the sale price grossed up with the consession?

Example $500k home with 10% down the mortgage amount is 450k. Does the home need to appraise just for 450 or 500?
If you include a consession and still put 10% down and it increases the mortgage amount than it just have to cover the loan not the inflated sales price?