What Is A Sellers Concession?
On every home purchase, no matter what state the home purchase is, there are closing costs associated with the home purchase transaction. Home buyers need to put down a down payment plus they will have closing costs associated with the purchase of the home. All mortgage loan programs allow a home seller to offer a home buyer a sellers concession towards closing costs. The home buyer can then use the sellers concessions to offset their closing costs where in many instances, the can cover all of the home purchase closing costs and all they need to worry about is coming up with the down payment.
What Does Closing Costs On Home Purchase Cover?
Closing costs on a home purchase transaction covers all costs and fees associated with the origination of the mortgage loan and all costs and fees associated with the purchase of the home. Examples of closing costs includes origination fees, credit reporting fees, underwriting fees, title charges and fees, attorneys fees, recording fees, homeowners insurance premium, pre-paids ( 2 months tax and insurance escrows ), appraisal fees, home inspection fees, and any other fees and costs in the purchase of the home.
What Is The Maximum Sellers Concession A Buyer Can Receive?
The maximum sellers concession a home buyer is allowed to accept depends on the mortgage loan program. FHA allows a maximum of 6% sellers concession, VA allows a maximum of 4% sellers concession, Conventional Loan programs allows a maximum of 3% sellers concession on owner occupant and second homes and 2% on investment properties. Home buyers can use all of the sellers concessions for closing costs only. Home buyers cannot use sellers concessions towards the down payment of the home. Any surplus of sellers concessions needs to go back to the home seller and the seller cannot give a home buyer a kickback of the left over sellers concessions in any way or form. It is best for the home buyer and mortgage loan originator to make sure that the sellers concessions is not wasted and that any surplus of the sellers concessions will be used such as by buying down the rate for a better rate. Home buyers can pay points to buy down their rates and on cases of sellers concessions overages, that is how mortgage lenders use the surplus sellers concession is to buy down the rate by buying points.
Why Would Sellers Give Sellers Concessions?
Sellers concessions is very common and most home buyers do get sellers concessions by home sellers. Home sellers are not giving out free money for the sake of helping a home buyer. Sellers concessions normally helps a home buyer qualify to purchase home where otherwise they would not qualify. Most home buyers need to scrap by to get a down payment of 3.5% for FHA Loans or 3% to 5% down payment for Conventional Loans and closing costs can add to another 3% or more of the purchase price. Lets take a case scenario on how home sellers give sellers concessions towards a home buyers closing costs: Say a home seller wants to net $100,000 on a home purchase and wants to help the home buyer with closing costs of $4,000 on a FHA Loan. The home seller and home buyer will negotiate a purchase contract for $104,000 with a $4,000 sellers concession towards the home buyers closing costs. The home buyer will have $4,000 to cover his or her home closing costs and the home seller will net his $100,000 price.