No one likes closing costs:
I want to discuss “seller concessions” – these are funds that the seller can contribute toward your costs to take out a new loan. For the purposes of this blog I am going to use the scenario of “conventional” financing. Conventional financing is a loan that is not guaranteed or insured by a government agency, i.e., FHA, VA etc. I’m also going to base this scenario using a physician loan with 95% financing.
You will always want to check with your lender to see if they allow for seller concession when taking out a physician loan and what percentage. If allowed, a customary percentage would be 3% of the sales price, not to exceed the actual costs. This 3% can go toward your closing costs, pre-paid items (homeowner’s insurance, escrow cushion), and discount points, if applicable. If the credit ends up exceeding what the actual costs are the lender may allow for the credit to go toward a tax proration due to the seller, if applicable or excess funds to be applied to the principal balance. You will only receive an estimate up front for the costs and they may be less than the original estimate. This can create an excess and there may be funds left on the table depending on your lender’s policies.
As an example; if you end up with excess funds from the seller and the lender doesn’t allow for a principal reduction you cannot get those funds back in cash. The only other option would be to see if the seller would be willing to reduce the sales price, which they may or may not be willing to do. Additionally, this may create a delay in closing and/or some challenges with your seller. You may be better served to just keep in mind that there is always the potential to end up with some funds that cannot be absorbed. You will want to have this discussion with your realtor/attorney when negotiating the offer.
If funds to close are tight this may be a good option to negotiate into your contract vs. a lower offer – you will have to weigh it out, but your payment savings on a lower sales price may not outweigh the benefit of not having to liquidate as much in savings to close. It’s something that may be worth considering.
Again, keep in mind that you cannot get any seller concessions back in cash, but any assistance from the seller toward the transaction is a benefit!
Be a savvy negotiator and reap the maximum benefit when buying your home!