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No, you're not too conservative. You're commenting on a real issue out there, which is a nationwide foreclosure disaster.
But, to break it down for you, the seller's concession is great for people who have the income to carry the loan, but wish to maintain a positive cash flow.
Say you see a home and agree on a purchase price of $425K. You then do the home inspection, and find the home needs $10K in repair. Well, you can negotiate with the seller, and either have the home price outright lowered, or have a seller's concession at closing. If you went with the typical reduction in price, the home price would then be $415K, you'd typically have to put down 20% ($83K) by closing (in order to avoid PMI), and that would leave you with a loan of $332K. You would pay your closing costs at the closing table, out of pocket, and then still have to come up with the $10K cash for the home repairs.
If you go the seller's concession route, you would purchase the home for $425K, put down 20% ($85K-$10K seller's concession= $75K) by closing, and carry a home loan of $340K. Your closing costs would essentially be paid for with the concession, and you would then have to only go and do the necessary repairs to the home.
In essence, the concession allows you to install the cost of repairs in the home mortage, without paying PMI, and without having to take a line of credit. Mind you, these numbers are just something I plugged in to make the point, but you can put your own figures in there and come up with the same results.
This is a good solution for people who are comfortable with carrying the mortgage, yet do not want to enter a mortgage cash heavy. The buyer may wish to invest the cash in something that pays off that much better and/or quicker. It's a good move for a qualified buyer who knows what he/she wants to do with their cash. This is disastrous for people who are stretching to purchase a home.
I understand what you are trying to explain. What I'm trying to say is that there's no free money from the seller. The money either comes out of your pocket or borrow from the bank that you have to repay with interest.
In your example, the difference is 8k out of pocket or borrow 8k additional from your bank given that the bank allows it. The end result is you have less equity and your house price is now artificially inflated (housing bubble here we come, again!). BTW, if your house is the only one with the inflated price, aren't you suppose to pay higher property tax than your neighbors?
I want to purchase a house in Long Island NY. Did anyone ever get the grant from Wells Fargo for first time buyers (or having not owned a home in the last 3 yrs) that can take the place of the sellers concession. How long did it take to get the grant?
The origional situation discussed the sellers concession was for closing costs. how the math works is
Purchase price - $400K
20% down - $80K
closing costs $15K
total out of pocket at closing $95K to avoid PMI
Purchase price -400K
seller's concession 15K
total "adjusted purchase price" $415K
20% down - $83K
closing costs - included
total out of pocket at closing $83K to avoid PMI
at least that is how I'm going to work it when I find a house. I'm trying to avoid PMI and qualify for a loan with 20% down. houses I'm looking at will need work, I need cash to do that. having the extra 12K in my pocket would help.
The origional situation discussed the sellers concession was for closing costs. how the math works is
Purchase price - $400K
20% down - $80K
closing costs $15K
total out of pocket at closing $95K to avoid PMI
Purchase price -400K
seller's concession 15K
total "adjusted purchase price" $415K
20% down - $83K
closing costs - included
total out of pocket at closing $83K to avoid PMI
at least that is how I'm going to work it when I find a house. I'm trying to avoid PMI and qualify for a loan with 20% down. houses I'm looking at will need work, I need cash to do that. having the extra 12K in my pocket would help.
Nice example!
Pretty much the only way you are going to get the sellers concession in this market is if you get an FHA loan--which will have MIP.
Reason? Declining market. Tough for appraisals to come in higher in most cases. Of course you might get lucky...
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