A seller concession is an arrangement in which a seller will cover some of the buyer’s closing costs. These arrangements, also known as seller contributions or seller assists, can make it much easier for individuals to reduce purchase expenses and achieve homeownership.
When purchasing a home, there are several different costs, expenses and fees, which can potentially be negotiated. The seller can pay all or most of your closing costs, including escrow impounds for future taxes. For example, you could have $3,000 to $4,000 in closing costs and impounds on a home purchased at around $250,000, while a home purchased at about $500,000 might incur $6,000 to $7,000. Some of these fees include property taxes, appraisal fees, insurance and inspection fees.
By reducing some of these upfront expenses, you can make it easier to make your home ownership dreams a reality.
What Are the Benefits of Seller Concessions?
With seller concessions, both buyers and sellers will be able to take advantage of several benefits. The purpose of these agreements is to reduce costs when buying a home, which makes it possible for buyers to close on a home they’re interested in. Individuals who have limited funds for closing costs won’t have to worry about spending everything on closing costs and draining their savings.
This also means that buyers will be able to sell their homes faster too. Your home will be less likely to stay on the market when it’s more accessible to buyers. You’ll be helping to streamline the entire process, making it easier to come to an agreement and get the sale closed. By paying for some of the closing costs, sellers will be able to encourage interested buyers to make a decision more quickly.
What Forms Can Concessions Take?
When someone makes an offer to buy a home, most often the initial offer isn’t the final one. Instead, it’s the start of some back and forth between the buyers and sellers. It’s a starting point. In the sales contract, the buyers can ask the sellers to pay for some or all of the buyer’s closing costs while at the same time allowing the buyers some time to have the home inspected during a specified period of time.
The offer can ask the sellers to pay a certain amount of closing costs in a dollar amount or as a percentage of the sales price of the home. For example, an offer could include language that states something like, “$250,000 for your home and you pay up to $5,000 in my closing costs” or “$250,000 and you pay 3% of the sales price toward my closing costs.” Either way, it’s considered a seller concession. Lending guidelines allow for such concessions but there are limitations.
Maximum Amount of Seller Concessions Allowed:
| Loan Type | Maximum Seller Concessions | |
|---|---|---|
| Conventional: | LTV > 90% | 3% |
| LTV 75.01%-90.00% | 6% | |
| LTV 75% or less | 9% | |
| FHA: | 6% | |
| VA: | 4% + Customary closing costs | |
| RD: | 6% | |
Note: The seller concession amount is a percentage of the sales price of the property.
Conventional Loans Seller Concession Guidelines
For example, with a conventional loan the maximum amount the seller can provide on loans with less than 10% down is 3% of the sales price. On a $250,000 price that equals $7,500. Larger down payments can allow the sellers to provide even more. With a down payment of 10 to 25%, the maximum goes up to 6% and with a down payment of more than 25%, the maximum goes up to 9%. On that same $250,000 home, that 9% represents $22,500 toward closing costs.
FHA Seller Concession and VA Seller Concession Guidelines
On an FHA home loan, the maximum is 6%. A VA loan limits such contributions at 4% while the USDA program allows the sellers to pay up to 6% of the sales price of the home in the form of concessions.
Yet that’s quite a bit of seller concessions compared to the price of the home and in some cases sizable concessions can directly affect the appraisal. How so?
Let’s say an offer is made at $250,000 and the seller agrees to pay 5% toward closing costs. That’s $12,500. But did it take $12,500 from the seller in order to close the deal? Are there recent sales in the area that indicate similar seller concessions? If not, the appraiser could devalue the home making note that while the sales price was indeed $250,000 the sellers had to provide $12,500 in assistance. Would the home be sold at $250,000 without any seller assistance? In this case there would be no question if there are similar sales in the area but sometimes too large of a concession can create valuation problems.
What Are Some Other Types of Loans?
Along with conventional seller concessions, there are several types of loans to consider, including:
- Federal Housing Administration (FHA) loans: With an FHA loan, it’s possible to get a home loan with as little as 3.5% down. While these loans are often popular for first-time homebuyers or those with a lower income, most homeowners who can’t get approved for other loans or who have been denied conventional loans are also encouraged to apply. Along with accepting low credit scores, many FHA loans have a no-closing-cost option.
- United States Department of Agriculture (USDA) loans: Backed by the USDA, these zero-down loans are especially beneficial to individuals in rural, suburban or low-income areas. This mortgage option offers benefits like competitive interest rates and more relaxed credit requirements, making it possible to get your dream home. This type of loan also doesn’t penalize buyers who want to pay off their loan sooner.
- Department of Veterans Affairs (VA) loans: Individuals who are either currently serving in the U.S. military, have served in the U.S. Armed Forces, or are a spouse of a current servicemember or veteran can qualify for a zero-down VA loan. This type of loan makes it possible for veterans to either purchase or refinance a home — without having to have a high credit score or down payment to qualify.
Asking a Seller to Pay Concessions
Your real estate agent can tell you whether or not seller concessions are common in the current environment and if so how much or how little. But when asking the sellers to pay for your closing costs, the seller might need a bit of motivation. After all, you’re essentially asking the sellers to lower the overall price of the home. One way to get the seller’s attention is to have a preapproval letter accompanying your offer. A seller is more likely to accept your request if you’ve already applied for a home loan and all that’s missing is a property address. Another way to get the seller to pay for your closing costs is to pay the list price or something close to.
When sellers work with their real estate agent to set a list price there is usually an ask price and the lowest price the sellers will be willing to accept. If you offer something closer to the list price the sellers might be more willing to pay for your closing costs. But at minimum you do have to ask. Be flexible and work with your real estate agent to craft the ideal offer. You want to get the best deal but you also want to come to the closing table with as little of your own funds as possible.
Why Choose Homesite Mortgage?
When you choose Homesite Mortgage, you’ll be able to take advantage of several benefits, including:
- Quick and easy process: We understand that buyers and sellers are busy and have a lot on their plate throughout the homebuying and selling journey. This is why we’ve created a process that helps you achieve your goals in as little time as possible. In most cases, you can expect to close your loan in just 18-22 business days.
- Low costs: Working with Homesite Mortgage means you’ll have access to some of the lowest interest rates and closing costs. Saving even more money throughout the homebuying process is more achievable than ever before.
- Licensed mortgage bankers: Experience peace of mind knowing you’ll be working with a team of experts. Our licensed mortgage bankers are here to provide you with the advice and answers you need to make the smartest mortgage decisions.
- Closing Day Guarantee: With our Closing Day Guarantee, we’ll make sure you reach your goals in as little time as possible. We use a streamlined process that ensures you close on your home on time. Easily plan weeks ahead so you have everything in order for when the big day comes around.
- Exceptional customer service: One of the benefits that makes Homesite Mortgage stand out in the industry is our dedication to delivering exceptional customer service. We are consumer-focused and do what it takes to make sure you know of all your options and obtain the best possible loan.
Discover Our Quick and Easy Approval Process
At Homesite Mortgage, we are committed to streamlining and simplifying seller concessions. No matter if you’re interested in qualifying for a conventional loan or another type like an FHA, USDA or VA loan, we’ll work with you to ensure you experience a quick and easy approval process. You can trust that our team will do what it takes to meet the needs of buyers and sellers.
Interested in finding out how our approval process works? We encourage you to either give us a call at 877-941-2819 or fill out our online contact form to speak with a mortgage expert today.
{{cta(‘a143d19e-d4ac-4cf1-aecf-487e3d6dce14’)}}