If you’re thinking of buying a home, you may want to consider the possibility of seller concessions to help reduce upfront loan expenses. Imagine having a portion of your mortgage closing costs covered or even getting some essential home repairs taken care of without having to dig into your savings. That’s where seller concessions come in, also known as seller assistance. It can be a significant benefit for both buyers and sellers. In this guide, we’ll explore what seller concessions are, seller assist limits, and frequently asked questions.
What Are Seller Concessions?
Seller concessions are contributions paid by the seller that go toward the homebuyer’s closing costs. These can include closing fees, prepaid expenses, or even home repairs or improvements. These concessions can help lower the amount of money a buyer needs to bring to the closing table, making the home purchase more affordable.
The concession amount can be expressed as a percentage of the home’s purchase price or fixed dollar amount.
Examples of What Seller Concessions Can Cover
Seller concessions can be used for a variety of mortgage and homebuying costs including:
- Loan Origination Fees. Fees charged by the lender for processing the loan application.
- Appraisal Fees. This is the cost of having a home appraised.
- Home Inspection Fees. This is the cost of having a home inspected before closing.
- Property Taxes. Prepaid property taxes may be included in closing.
- Title Insurance. This insurance protects the buyer and lender from potential disputes over ownership.
- Discount Points. Also known as mortgage points, these help pay down the interest rate using upfront costs.
- Home Repairs or Improvements. Costs for necessary repairs identified during the home inspection or agreed-upon improvements before the sale.
How Do They Work?
- Negotiation. Seller concessions are typically negotiated as part of the buyer’s and seller’s purchase agreement. This request can be made with help from a real estate agent.
- Agreement. If the seller agrees to concessions, the specific details are outlined in the contract and must not exceed a specified limit depending on the loan type.
- Appraisal. The agreed-upon concessions cannot inflate the property’s value. Lenders require an appraisal to ensure the property’s market value supports the loan amount, including the concessions.
- Loan Approval. The lender will review the agreement and appraisal. This will ensure that the concessions align with the mortgage program’s guidelines.
- Closing. When the loan is ready to close, the costs are applied to the buyer’s closing costs or other agreed-upon expenses.
Who Benefits from Seller Concessions?
Both the buyers and sellers can benefit!
- Buyers. Concessions can lower the upfront costs needed to buy the home, making it easier to afford the property.
- Sellers. Offering concessions can also make the home more attractive for potential buyers, helping sell the home quicker.
Seller Assistance Limits
Limits on how much a seller can contribute vary depending on the loan type and down payment:
Conventional Loans
- Primary residence and second homes:
- 3% maximum with less than 10% down
- 6% maximum with 10-25% down
- 9% maximum with more than 25% down
- Investment properties:
- 2% maximum regardless of down payment
FHA/USDA Loans
- 6% maximum toward closing costs and prepaid items
VA Loans
- 4% maximum toward prepaid items
- No limit for closing costs or reasonable discount points
Frequently Asked Questions
Can the seller cover the entire down payment?
No. Seller concessions cannot be used for the full down payment. They are typically used for closing costs, prepaid expenses, and other associated fees, while meeting the loan guideline limits.
Does seller assistance affect the loan approval process?
Seller concessions themselves do not affect loan approval, but lenders can consider the impact on the Loan-to-Value (LTV) ratio and may require specific guidelines.
How does it impact the home appraisal?
The home’s appraisal must support the purchase price, including any seller contributions. If the appraised value is lower than the agreed-upon price, the lender may require adjustments.
Can a buyer negotiate for concessions?
Yes! Homebuyers can request this during negotiations. It’s essential to work with a knowledgeable real estate agent to help navigate the process.
How do seller concessions benefit first-time homebuyers?
First-time buyers often benefit from this as they may have limited funds for closing costs and other expenses. Seller assistance is another great way for more people to unlock the door to homeownership!
If you’re ready to start your homebuying journey, your local Supreme Lending team is ready to help! Contact us to learn about your mortgage options and get pre-qualified today.