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MLO Training e-Learning: How To Negotiate a Home Before Signing Contract
People who want to purchase a house will go through the homebuying and mortgage process. Every lender may have their own homebuying and mortgage process system. However, what I will cover on this sub-forum on How To Negotiate a Home Purchase Prior To Signing a Home Purchase Contract is a comprehensive step by step process where the buyer is protected and avoid stress and a last-minute cancellation of the home purchase due to one or more issues that could have been avoided.
Factors and Variables That Impact Negotiation of Home Purchase
If you do not have a real estate agent to represent you by the time you are pre-approved, I advise to interview several realtors. Loan officers, attorneys, family, friends, and business associates often can refer you to a real estate agent who they had a pleasant and rewarding experience with. You can also check online and reputable websites like Zillow, Realtor.com, Redfin, online communities, and social media platforms. Do your due diligence. Check their online customer reviews, years of experience, and definitely make sure the realtor is a full time experienced agent who is from the area you intend to look for a home.
The method the buyer’s realtor advise you on negotiating a home purchase is dependent on the housing market. Is it a buyer’s market or sellers market? How is the housing inventory vs demand? What is the market time of an average home? Are you going to encounter many other potential buyers where it may lead to a bidding war? In a competitive market, homebuyers often face stiff competition where multiple buyers enter offers above the list price. We can cover more on this topic in this sub-forum and other sub-forums of GCA Mortgage Forums e-Learning MLO Training Bootcamp.
Once a pre-approval letter is obtained, assist both the borrower and the realtor during the negotiation of the offer. The following is a step-by-step guide for the home-buying process.
Key Elements of the Negotiation ProcessContingencies
Contingencies allow buyers to cancel the purchase agreement without penalty if specified conditions are not satisfied.
Financing Contingency:
- If the buyer’s loan is not approved, the agreement may be canceled.
- This contingency typically addresses loan details and establishes a time frame.
Inspection Contingency:
- Buyers are generally allotted 7 to 14 days to inspect the property.
- If issues are identified, they may request repairs or a price reduction.
Appraisal Contingency:
- If the appraised value of the home is less than the agreed-upon price, buyers may renegotiate the terms or withdraw from the agreement.
Title Contingency:
- This provision ensures that the property’s title is clear and free of liens or disputes.
Sale Contingency:
- Applicable when the buyer must sell their current home before purchasing; such offers are typically less competitive.
Seller Concessions:
- Concessions are instances in which the seller agrees to cover specific costs or fulfill certain contractual terms.
Maximum Seller Concession Allowed Per Loan Program:
- HUD allows up to 6% seller concessions towards closing costs on FHA Loans.
- The Department of Veterans Affairs allows up to 4% seller concessions towards closing costs on VA Loans.
- USDA Loans allows up to 6% seller concessions towards closing costs on USDA Loans.
- Fannie Mae and Freddie Mac allows up to 6% seller concessions on primary owner-occupant homes and second homes and up to 2% seller concessions on investment properties.
- Seller concessions on Non-QM Loans, Jumbo Loans, and Portfolio loans depends on the individual mortgage lender (Some lenders allow 2% while others allow up to 6%).
Homebuyers can use seller concessions to cover closing costs and pre-paids. However, closing costs cannot be used for down payment on a home purchase. Overages on closing costs cannot be paid to borrowers. Overages of closing costs goes bsck to the home seller. In the event of overages of seller concessions, loan officers will use it towards buying the rate. If the borrower gets seller concessions for closing costs but falls short, the lender can offer lender credit to pay the shortage of closing costs. Below are informative guides on this subject matter. If you have any questions, please reply on the comment section below this post:
- Lender Credit and Seller Concessions: https://gustancho.com/lender-credit-and-sellers-concessions/
- Interest Rate Buy Downs: https://gustancho.com/interest-rate-buydowns/
- VA Guidelines on Seller Concessions: https://gustancho.com/va-guidelines-on-seller-concessions/
- Steps To Buying a House During a Bullish Sellers Market: https://gustancho.com/steps-to-buying-your-first-home/
Closing Costs:
- Sellers may contribute 2 to 6% of the purchase price toward the buyer’s closing costs, and occasionally more.
- Sellers can also pay points to reduce the buyer’s interest rate, either for the duration of the loan or for a specified period, utilizing options such as a 2-1 or 3-2-1 buydown.
Home Warranty:
- The seller may provide a one-year home warranty that covers major systems.
- Alternatively, rather than completing repairs, the seller may credit the estimated repair costs on the closing statement.
Earnest Money:This deposit typically ranges from 1 to 3% of the sale price, although the amount may vary based on the property.When Earnest Money is Refundable:
- Set clear rules for refunds, usually if contingencies are not met.
- After contingencies are waived, the money is no longer refundable.
Who Holds the Money:
- Decide who will hold the earnest money.
- Deal Terms: If the transaction does not proceed, ensure that the refund conditions for the earnest money are clearly defined.
- Earnest money is clear.
Strategic Approaches to NegotiationMarket Knowledge:
- Determine a fair sales price by analyzing recent transactions, prevailing market trends, and comparable property values.
Offer Terms:
- In addition to price, evaluate other terms that may be attractive to the seller, such as the closing date or proposed contingencies.
Protections vs. Offers:
- In a competitive market, it is important to balance the appeal of the offer with adequate buyer protections.
- When multiple buyers are expected, develop a clear negotiation strategy.
- Review each negotiation point, its impact on lending, implications for affordability, and its significance prior to finalizing the offer.
Maximum Seller Concession Allowed Per Loan Program:
- HUD allows up to 6% seller concessions towards closing costs on FHA Loans.
- The Department of Veterans Affairs allows up to 4% seller concessions towards closing costs on VA Loans.
- USDA Loans allows up to 6% seller concessions towards closing costs on USDA Loans.
- Fannie Mae and Freddie Mac allows up to 6% seller concessions on primary owner-occupant homes and second homes and up to 2% seller concessions on investment properties.
- Seller concessions on Non-QM Loans, Jumbo Loans, and Portfolio loans depends on the individual mortgage lender (Some lenders allow 2% while others allow up to 6%).
Homebuyers can use seller concessions to cover closing costs and pre-paids. However, closing costs cannot be used for down payment on a home purchase. Overages on closing costs cannot be paid to borrowers. Overages of closing costs goes bsck to the home seller. In the event of overages of seller concessions, loan officers will use it towards buying the rate. If the borrower gets seller concessions for closing costs but falls short, the lender can offer lender credit to pay the shortage of closing costs. Below are informative guides on this subject matter. If you have any questions, please reply on the comment section below this post:
- Lender Credit and Seller Concessions: https://gustancho.com/lender-credit-and-sellers-concessions/
- Interest Rate Buy Downs: https://gustancho.com/interest-rate-buydowns/
- VA Guidelines on Seller Concessions: https://gustancho.com/va-guidelines-on-seller-concessions/
- Steps To Buying a House During a Bullish Sellers Market: https://gustancho.com/steps-to-buying-your-first-home/
Closing Costs:
- Sellers may contribute 2 to 6% of the purchase price toward the buyer’s closing costs, and occasionally more.
- Sellers can also pay points to reduce the buyer’s interest rate, either for the duration of the loan or for a specified period, utilizing options such as a 2-1 or 3-2-1 buydown.
Home Warranty:
- The seller may provide a one-year home warranty that covers major systems.
- Alternatively, rather than completing repairs, the seller may credit the estimated repair costs on the closing statement.
Earnest Money:This deposit typically ranges from 1 to 3% of the sale price, although the amount may vary based on the property.When Earnest Money is Refundable:
- Set clear rules for refunds, usually if contingencies are not met.
- After contingencies are waived, the money is no longer refundable.
Who Holds the Money:
- Decide who will hold the earnest money.
- Deal Terms: If the transaction does not proceed, ensure that the refund conditions for the earnest money are clearly defined.
- Earnest money is clear.
Strategic Approaches to NegotiationMarket Knowledge:
- Determine a fair sales price by analyzing recent transactions, prevailing market trends, and comparable property values.
Offer Terms:
- In addition to price, evaluate other terms that may be attractive to the seller, such as the closing date or proposed contingencies.
Protections vs. Offers:
- In a competitive market, it is important to balance the appeal of the offer with adequate buyer protections.
- When multiple buyers are expected, develop a clear negotiation strategy.
- Review each negotiation point, its impact on lending, implications for affordability, and its significance prior to finalizing the offer.
https://gustancho.com/how-to-negotiate-a-home-purchase/
https://www.youtube.com/watch?v=PsvUnD3tuL0
gustancho.com
Lender Credit and Sellers Concessions For Closing Costs
Lender Credit and Sellers Concessions can be used for closing costs on but cannot be used for down payment on home purchase.
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MLO Training e-Learning: How to Negotiate a Home Before Signing a Contract
Training Topic: Home Purchase Negotiations, Seller Concessions, and Purchase Contract Preparation
Audience: Mortgage Loan Originators, Loan Officer Assistants, Mortgage Processors, Real Estate Agents, and First-Time Homebuyers
Training objective: Learn how mortgage loan originators can assist homebuyers in evaluating purchase offers, negotiating the various financing terms, and avoiding all sorts of costly mistakes prior to signing the purchase contract.
Why Negotiating Before Signing a Purchase Contract Matters
Buying a house is more than just agreeing on a price. The terms negotiated prior to the execution of the real estate contract can have a bearing on the buyer’s mortgage approval, their closing costs, their cash to close and their overall financial position.
MLOs need to understand how the purchase negotiation process affects financing. The agent will handle most of the purchase negotiation, but the MLO will explain the financing options, estimate closing costs, and flag any mortgage-related issues the buyer may not know about before committing to the property.
A buyer who negotiates properly can save thousands on closing costs, get seller-paid repairs or get financial assistance towards an interest rate buydown.
1. Get Mortgage Pre-Approved Before Negotiating
A mortgage pre-approval will tell you how much you can afford to spend before you make an offer. Prior to the buyer putting in an offer the MLO is to review the borrower’s income, credit history, monthly debt service, assets, employment and the proposed financing program.
The MLO should also look at the proposed property’s taxes, homeowners insurance, HOA dues and any other expenses which could impact the borrower’s debt service ratio.
A pre-approval isn’t a guarantee of actual loan approval. That said a good pre-approval can go a long way in enabling the buyer and the agent to put together a financially sensible offer.
2. Research the Home’s Market Value
The listed price doesn’t in any way represent the property’s true market value. Before you make an offer you should have your agent look at the comparable recent sales, the condition of the property and the local market.
Key considerations are how long the property has been on the market, whether the seller has lowered the price and whether the comparables are selling above or below their listed prices.
For instance, a property listed at $350k might have a number of comparables that would support a market value of circa $335k. That would give you a solid basis on which to negotiate a lower purchase price. The MLO should be clear that the mortgage appraisal is a distinct process and that the appraised value will in turn impact the amount of mortgage that can be obtained.
3. Negotiate Seller Concessions
Rather than just asking for a reduction in the purchase price, the buyer could ask the seller to contribute towards the allowable closing costs. Seller-paid costs can include loan-related closing costs, prepaid property taxes, homeowners insurance, and eligible interest rate buydowns.
For example, a buyer purchasing a $350k home might negotiate a $10k seller credit towards their eligible closing costs rather than ask for a $10k price reduction.
Depending on the buyer’s finances, the seller’s credit may be the more immediate relief, as it will reduce the amount of money that needs to be available at closing. However, seller concessions are subject to mortgage program limits and cannot be used automatically as a down payment. For conventional loans, Fannie Mae has different limits depending on occupancy and loan-to-value.
4. Understand the Importance of Home Inspections
Home buyers should be very mindful of inspection protections prior to signing the purchase agreement. A home inspection can pick up on structural problems, roofing problems, plumbing problems, electrical problems and all sorts of other property issues that may well end up requiring a considerable amount of repair work.
Depending on the purchase contract and local laws, buyers may negotiate repairs, request a financial credit, or exercise an inspection contingency.
Mortgage loan originators should also be aware that certain property defects can impact FHA, VA, USDA and conventional financing. A seller’s agreement to provide a credit in no way necessarily satisfies the property condition requirements of the loan program or the appraiser.
5. Protect the Buyer With Financing and Appraisal Contingencies
A financing contingency may give the buyer some protection in the event that mortgage approval is not obtained within the terms of the contract. An appraisal contingency can cover what happens if the property ends up appraising for less than the purchase price agreed upon.
Consider a buyer who’s agreed to buy a property for $400k and the appraisal comes in at $385k. The parties may be able to negotiate a reduced purchase price, the buyer may be able to put in additional funds if that’s allowed under the contract or there may be some other way of resolving it under the contract. The buyer’s rights will of course be determined by the specific language of the contract and the applicable law. The MLO should explain the financing implications, but the actual interpretation of the contract and the drafting of the contract itself should be left to a qualified real estate professional or attorney.
6. Negotiate the Closing Date Carefully
A purchase contract should set out a realistic timetable for completion. The MLO should consider the mortgage program, the underwriting requirements, the appraisal, the title and any documentation that may take longer.
Loans involving manual underwriting, self-employment, bankruptcy, complex income or specialist property types will require additional review.
An aggressive closing date may make the offer more attractive but can create a whole host of problems if the financing isn’t able to close on that date. The MLO must communicate to the buyer and their agent what the expected financing timeline is prior to the offer being submitted.
7. Understand Buyer-Agent Compensation Before Signing
Home buyers need to understand how their agent is going to be paid. Under the practice changes implemented by the National Association of REALTORS® in August 2024, MLS participants working with buyers will generally be required to have a written buyer agreement in place prior to touring homes.
Buyer agent compensation is negotiable. The buyer can also negotiate as to whether the seller will contribute towards that. All applicable state requirements and financing rules must be taken into account.
MLOs need to ask themselves whether the buyer agent commission will result in an extra cash outlay or have any impact on the financing.
8. Case Study: Negotiating a $350,000 Home Purchase
A first time buyer with an FHA loan looking to buy a house which is listed at $350k. The buyer has sufficient funds to make the required down payment, but very limited funds available for the closing costs.
The buyer’s real estate agent is going through a number of options with the seller.est a lower purchase price, ask for a seller credit toward eligible closing costs, or negotiate a combination of both.
For instance the seller might agree to a $345k purchase price with a $7k seller contribution to closing costs. The MLO must then recalculate the loan amount, monthly payment, cash-to-close, and other financing figures. The proposed seller contribution must comply with FHA requirements and the actual amount of eligible expenses. The lesson is that the lowest purchase price is not always the most financially beneficial offer for a particular borrower.
9. The MLO’s Responsibilities Before Contract Signing
An effective mortgage loan originator helps the homebuyer understand the financing consequences of a proposed offer.
The MLO should review the anticipated monthly mortgage payment, estimated closing costs, required down payment, available seller concessions, and proposed closing date.
The MLO should also evaluate whether the property and financing terms appear consistent with the selected loan program.
However, an MLO should not independently negotiate purchase contract terms on behalf of the buyer unless separately licensed and authorized to do so. The real estate agent or qualified attorney handles contract negotiations and legal matters, while the MLO focuses on mortgage eligibility and financing.
10. Final Thoughts on Negotiating a Home Before Signing a Contract
Successful home purchase negotiations involve more than getting the seller to reduce the asking price. Buyers should understand the property’s market value, negotiate appropriate seller concessions, protect their interests through suitable contract contingencies, and confirm that the financing terms are realistic.
Mortgage loan originators who understand the relationship between purchase negotiations and mortgage underwriting can help homebuyers make more informed decisions and avoid unnecessary financing complications.
MLO Training Knowledge Check
Knowledge Check — 4 Questions
0 of 4 answered
1. Who Should Generally Negotiate Purchase Contract Terms on Behalf of a Represented Homebuyer?
- Mortgage loan originator
- Buyer’s real estate agent
- Mortgage processor
2. What is a Potential Benefit of Negotiating Seller Concessions?
- They automatically cover the down payment.
- They guarantee loan approval.
- They can reduce eligible closing costs.
3. What Should an MLO Do When an Appraisal Comes in Below the Purchase Price?
- Explain financing implications and review available options.
- Increase the appraisal amount.
- Tell the buyer the contract is automatically canceled.
4. Should an MLO guarantee a closing date before full underwriting?
- Yes, with a pre-approval
- No, the timeline should reflect outstanding conditions.
- Yes, if the buyer requests it
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Training Takeaway:
A knowledgeable mortgage loan originator should help a buyer understand the financial consequences of an offer before the buyer signs a binding purchase agreement.
Training material updated November 2, 2026. State laws, contract practices, and investor or mortgage program guidelines may vary.
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