A Guide To Seller Concessions on a Home Purchase

This guide covers frequently asked questions on seller concessions on home purchase transactions.  There are two types of costs involved when buying a home. The down payment and closing costs. Most of our borrowers at GCA Forums do not have to worry about closing costs. Our borrowers need to worry about the down payment.

Closing costs are normally covered by seller concession and lender credit. Most home sellers will give homebuyers seller concessions so the buyers can cover the closing costs.

Seller concessions can only be used for closing costs. Homebuyers cannot have overages in seller concessions. If there are overages in seller concessions, they must return to the home seller. However, this does not happen. If a loan officer realizes there are overages in seller concessions, the loan officer will use the overage to buy down the rate through discount points. In the following paragraphs, we will cover how seller concessions work.

What Are Seller Concessions?

The concession amount is established in the purchase contract as either a fixed dollar amount or a percentage of the sale price. At closing, the seller credit is applied toward the buyer’s costs, reducing the upfront cash needed to close. Seller concessions are funds the seller offers to cover specific closing costs for the buyer. These can include:

• Loan origination fees
• Discount points to buy down the interest rate
• Appraisal fees
• Title insurance
• Inspection fees
• Property taxes and insurance escrow
• Attorney fees
• Prepaid interest

Seller concessions are an incentive where the home seller agrees to pay some of the buyer’s closing costs on a home purchase. Here are some key points about seller concessions for closing costs: Seller concessions are costs the seller agrees to pay that would normally be the buyer’s responsibility at closing. Common costs covered include loan origination fees, discount points, appraisal fees, title charges, and prepaid items like taxes/insurance. Speak With Our Experts About Seller Concessions

Benefits of Seller Concessions

Lower Out-of-Pocket Expenses: Reduces the cash the buyer needs at closing. Increased Affordability: Helps buyers who might be cash-strapped but have stable incomes. Expanded Buyer Pool: Makes the property more attractive to potential buyers. Different loan types have varying limits on how much the seller can contribute:

Conventional Loans

For conventional loans, seller concessions are typically capped at around 3-6% of the home’s sale price. For FHA loans, sellers can contribute up to 6% of the home’s sale price. These limits help prevent over-inflating the home price to cover excessive closing costs. If the down payment is less than 10%, seller concessions are capped at 3% of the purchase price. If the down payment is between 10% and 25%, concessions can be up to 6%. If the down payment is more than 25%, concessions can be up to 9%.

FHA Loans

Seller concession is capped at 6% of the purchase price, regardless of the down payment amount.

VA Loans

Seller concession can go up to 4% of the purchase price, but this does not include normal discount points and loan costs, which the seller can also pay.

USDA Loans

 Seller concession i typically capped at 6% of the purchase price.

How to Negotiate Seller Concessions

Impact on Loan Approval: Lenders consider seller concessions when approving loans, and excessive concessions might affect the loan amount or approval.

• Consult Your Real Estate Agent: An experienced agent can help you understand the local market and advise on how much to ask for.
• Make a Competitive Offer: Sometimes, offering a slightly higher purchase price can justify the request for concessions.
• Be Specific: Clearly outline what you want the seller to cover based on an estimate of your closing costs.
• Leverage Market Conditions: In a buyer’s market, sellers may be more willing to agree to concessions. In a seller’s market, this may be more challenging.
• Appraisal Issues: If the purchase price is inflated to cover concessions, the property must appraise for that higher amount.
• Potential Trade-offs: Sellers might agree to concessions but must be more flexible on other negotiation points, such as the sale price or repairs.

Seller concessions can be a valuable tool in making home purchases more affordable. Working closely with your real estate agent and lender is essential to understand how to best utilize concessions within your specific financial situation and the prevailing market conditions.

Benefits for Buyers

Sellers are not obligated to offer concessions; they are a negotiated item. Higher seller concessions may be offsetting a higher purchase price. Concessions are subtracted from the seller’s net proceeds at closing. Seller concessions allow home buyers to finance more of their closing costs by having the seller contribute or provide a credit at closing time. 

Offering seller concession to a homebuyer provides more affordable financing options, especially for first-time and cash-strapped buyers.Allows buyers to pay less out-of-pocket for the mortgage closing costs and prepaid items.

Seller concession can help buyers with limited funds for the down payment and closing costs still qualify. Seller concessions are contributions a seller agrees to make towards the buyer’s closing costs. These concessions can help buyers reduce out-of-pocket expenses at closing, making homeownership more accessible. Here are key points to understand about seller concessions. Click here to apply for mortgage loan with us

Qualifying For Home Loans With Lenders With No Overlays

In today’s rapidly evolving mortgage market, seller concessions are incredibly popular. The Team at Gustan Cho Associates are experts in maximizing your seller credits. Many of our borrowers rely on seller credits to close their mortgage transactions. Let’s face it: saving for the down payment is hard enough, and we could all use a little help with the closing cost.

If you have any mortgage questions, please contact the Gustan Cho Associates. We are available seven days a week and in the evenings.

80% of our clients have been denied a mortgage, and we will work with you to qualify as soon as possible! Many times, it is a lender overlay that gets in the way. We are experts in manual underwriting and are ready to help you purchase your next home. Please call GCA Forums at 262-627-1965. Text us for a faster response. Ore email us to schedule a one-on-one mortgage consultation at gcho@gustancho.com.