Ever hear the term "6% solution" bandied about? Well, it's a "seller concession" that can save you some money (although not necessarily 6% of the home's value.) But there's a catch, which will be explained shortly. First, here's how it works, illustrated by an example swiped from our Home Center:

Imagine that you and the seller agree on the price of the house at, say, \$200,000. You then ask the seller for a 6% seller concession. What this means is that you add (up to) 6% to the price of the house. That's right, you're now going to pay \$212,000 for that house -- but the seller is going to give you that \$12,000 back when the sale takes place. You're going to use that money to cover all of your closing costs.

If we pretend for a moment that those costs add up to precisely \$12,000, then what you've done is folded those closing costs into the mortgage. Points, title search, recordation fees, and all other closing costs -- most of which are not tax-deductible -- have effectively been included in your mortgage. Since your mortgage interest is tax-deductible, these costs have effectively become tax write-offs.

In addition, you don't have to come up with all that extra cash at settlement. Your down payment will be somewhat higher, (if you're putting down 20%, then in the current example, your down payment would be \$42,400, versus \$40,000). And, of course, your mortgage payments will be higher, but it ends up saving you money in the end.

The seller has no reason to refuse this -- after all, the agreed-to price is still the same.

The catch with the 6% solution is that the house has to appraise for the higher value. If the appraiser comes back and tells you that this house won't appraise for more than \$200,000, you can't do it.

Let's look into this a little further. Say you buy the house for \$200,000. Your \$40,000 down payment leaves you needing a \$160,000 mortgage. You get a 30-year loan at 8%. Your monthly payments for principal and interest are \$1,174.

Now, say you decide to use the 6% seller-concession strategy. You buy this house for the price of \$212,000. You put down 20%, and this leaves you needing a \$169,600 mortgage. Your monthly payments will be \$1,244, or \$70 more per month. Is it worth it?

To begin with, many people aren't going to feel an enormous pinch paying the extra \$70 per month -- not nearly as much as they would feel having to fork out an extra \$12,000 all at once to cover closing costs. But what about the fact that now you have to pay this extra money over the course of 30 years? Well, over the course of 30 years, you're paying \$25,200 more for that extra \$12,000 (\$70 more per month times 12 months in a year times 30 years = \$25,200).

However, remember that's \$12,000 less out of your pocket at the time of closing. If you take \$12,000 and invest it at 10% (less than the market average has returned over the past 35 years), then your money will grow to more than \$200,000 (before taxes) at the end of 30 years. So, in this scenario, it can be well worth it.

Naturally, you'll want to run the numbers for your particular loan to see whether it would be worth it for you.

Note: There are certain rules under certain mortgages as to what the seller can actually pay for at closing. If you get \$12,000 from the seller and all of your costs are \$12,000, this does not necessarily mean that you won't have to pay anything. Be sure to ask your lender what costs the seller may cover.

And if you're thinking of buying or selling a home or investment property, spend some time in our Home Center, which features lots of money-saving tips and even some special mortgage rates.

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