Consider Utilizing a Seller's Credit

Let's face it. One of the main questions you probably have in your head is how much money am I going to need to purchase this house? That's a really good question.  A couple of things you'll need to get to the finish line of purchasing a home is your down payment, your closing costs, your insurance, and your escrow funding.  

Depending on what time of the year you purchase your home, the property taxes that the seller owes you from living there last year may help you reduce the amount of money you need to bring to the table. However, if you're buying your home close to the time your county's tax bill is due, this may not be the case. If you're not going to benefit from a tax proration, the next thing you should do is ask your realtor to ask for a seller's credit.  

A seller's credit is the seller agreeing to pay for a portion (or all) of your closing costs, insurance, and escrow funding.  On a FHA application this amount can be 6% of the sales contract and on a conventional this number can be 3% of the sales contract.  So to keep math easy, let's say the house you want to put an offer for on is $100,000.  That means on a FHA application, the seller could give you up to $6,000 towards your closing costs, insurance, and escrow funding.  Or if in this example, they had to have $100,000. Maybe ask them to accept an offer of an amount higher than $100,000. + a seller's credit. You could structure the offer at $106,000 with a seller's credit of $6,000.  They're still going to get their $100,000 ($106,000 - $6,000 = $100,000), but you will have essentially financed your closing costs, insurance, and escrow funding into your mortgage.  

The only word of caution in this strategy is that the house will need to appraise for the amount of the loan. So if you do add a seller's credit in over the original asking price, it just needs to appraise for that amount. The majority of the time this does not create an issue, but it is something to know ahead of time. 

If you have any questions about this strategy, please give us a call at the office at (815) 324-9760.