In some areas of the country, it’s a sellers’ market, but if you’re not so lucky and you need a competitive edge, you might consider offering buyer incentives, which can work in a couple of different ways depending on the homebuyer’s financing.
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We tapped a couple of experts to explain how this might look in practice, and here’s what they said.
Mortgage lenders tend to be finicky about seller concessions, says Heather McRae, a senior loan officer at Chicago Financial Services. Concessions can be limited to certain percentages based on the buyer’s down payment, and the lender will want to see how it’s phrased in the contract to ensure only one incentive is provided. The incentive itself must go toward closing costs or prepaid items.
“You can’t have a seller giving you $10,000 to put a new carpet in,” McRae said, by way of example.
Among the closing costs — incentives buyers can offer are funds to cover a bank’s origination fee, a title company fee or a transfer tax from the city or county (most counties charge a recording fee to record the mortgage, McRae explains).
For prepaid items, sellers can offer a credit for, say, the buyers’ nonrecurring closing costs, i.e. those payments paid on a one-time basis at closing, like loan origination fees. Just keep in mind lenders have restrictions on how much sellers can credit to buyers at closing, and amounts tend to vary by lender.
With cash deals, sellers can offer whatever incentives they want, although, as Mark Keppy, a real estate broker also based in Chicago, pointed out, “there’s not a lot that buyers really desire in this market, they’re just trying to secure the property.”
Often, sellers choose to offer a home warranty, Keppy said, although the “best thing is for sellers to be more flexible on timing and close quicker.” Coming down on price doesn’t hurt either, he added.
Looking to Buy?
If you’re selling your house and looking to buy a new one, it’s a good idea to make sure your credit score‘s in tip-top shape before you start house hunting, in addition to figuring out your budget. (You can see how much house you can buy using this free calculator.) Your credit score can determine not only whether you can get a mortgage, but what percentage rate you’ll pay. You can view your credit scores for free, updated each month, on Credit.com.
This article originally appeared on Credit.com.