Seller's Concessions and Paid Rate Buydown

 A Buyer recently informed me his Seller just offered him a 2-point concession…What does this mean and what are the buyer’s options?  

A seller’s concession is a monetary contribution given by a home seller to a potential home buyer to use towards her closing expenses and prepaid items. Lenders allow the seller of a home to “credit” a portion of her proceeds to the home buyer but lenders have limits on the amount of seller’s concession they will permit. Generally, for “conventional” (non-jumbo and sold on the secondary market to Fannie Mae and Freddie Mac, among other investors) loans, if the buyer’s down payment is less than 10%, the seller can contribute up to 3%. If the down payment is 10 – 25%, the Seller can contribute up to 6%. If the down payment is more than 25%, the Seller can contribute up to 9%.

Many mortgage professionals will apply the seller funds to underwriting costs, escrow fees, and loan fees, but some deeper thinkers consider permanently buying down the interest rate on the loan which significantly reduces the monthly mortgage payment. So, in a better case scenario, a buyer can take those offered 2 points and buy her rate down for the life of the loan with the lender.  

For example, if a base rate is 6% on a given product, typically 2 points would buy that rate down to 5.5%.  

Another option, however, is referred to as a Temporary Buydown. In this example, instead of getting 5.5%, a buyer can use the points to buy down the rate to 4% the first year, 5% in year 2, and then the rate would go back to 6% the rest of the way. Ultimately the Temporary Buydown option is a great way to front-load interest savings and if strategically, a buyer either plans on leaving the home soon OR thinks rates could fall, and there is a refi opportunity available in the not-too-distant future, this may be a great way to use that seller concession.



WOULD YOU LIKE TO KNOW MORE? PLEASE CONTACT US! IT IS OUR PLEASURE TO ASSIST YOU! THANK YOU! 

Fernando Branco, GRI, ABR, CNE
REAL ESTATE BROKER
Graduate Realtor Institute (GRI) 
Accredited Buyer Representative (ABR) 
Certified Negotiator Expert (CNE)
162 Huntington St, Ste 1R, Brooklyn, NY 11231
c: (212) 321-0115
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