Buying a home can be an exciting and rewarding experience but it also comes with its fair share of costs, from the down payment to closing costs. Knowing what to expect when you are buying a home can help you prepare financially and make sure that your budget is in order before signing on the dotted line.
This guide will provide an overview of seller concessions and closing costs so that you can understand how these expenses factor into the overall cost of purchasing a home.
We’ll cover topics such as who pays for what, common types of closing costs, how much money to set aside, and more. By understanding these concepts ahead of time, you’ll be able to confidently navigate the process with ease and ensure a successful purchase.
What are seller concessions?
Seller concessions are a form of financial assistance provided by the seller of a home to the buyer during the home-buying process. These concessions can take many forms, including paying for closing costs, making repairs to the property, or even providing a credit towards the purchase price of the home.
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Advantages of obtaining Seller Concessions
One of the main benefits of seller concessions is that they can help a buyer who may not have the funds to cover all of the costs associated with buying a home.
For example, if the buyer does not have enough money to cover the closing costs, the seller may agree to pay a portion of these costs on their behalf. This can make it easier for the buyer to afford the home and can help to reduce the amount of money that they need to borrow to purchase the property.
Another benefit of seller concessions is that they can help to make a home more attractive to buyers. For example, if the seller agrees to make repairs to the property before the sale, this can make the home more desirable to potential buyers and can help to increase the chances of a successful sale.
Seller concessions can also be a useful tool for sellers who are looking to sell their home quickly.
By offering concessions to potential buyers, the seller may be able to attract more interest in the property and can help to speed up the sale process.
Disadvantages of Seller Concessions
There are a few potential drawbacks to seller concessions that should be taken into consideration before agreeing to any terms.
For example, if the buyer does not have enough money for the down payment, the seller may request that they either increase the purchase price or take out a higher loan amount to cover this cost. This can lead to additional interest costs and a higher monthly payment.
In addition, seller concessions can reduce the amount of money that the seller receives from the sale. This means that if they are unable to find a buyer willing to pay above asking price, then they may end up losing money on the transaction due to having to cover the costs associated with seller concessions.
When a seller has multiple offers, requests for concessions often go overlooked and your odds of winning the house can decrease. In this case, it’s best to submit a an offer showing that you can cover the closing costs on your own; this will be simpler for the seller and could increase your chances of having your offer accepted.
What are Closing Costs
Closing costs are the fees associated with a home’s purchase that must be paid at the time of closing.
These costs typically include things like origination costs, title and attorney fees, as well as any taxes or insurance premiums that may be due.
Closing costs will vary from one transaction to another but can make up a significant portion of the overall purchase price of a home.
Maximum Allowed Seller Concessions
It is important to remember that seller concessions are not always applicable and may not be available in all home purchases.
In some cases, the buyer may be required to cover their own closing costs or other expenses associated with purchasing a property. Additionally, some lenders and mortgage programs have restrictions on how much of the closing costs can be covered by seller concessions so it is important to be aware of any potential limitations before making an offer on a property.
FHA Loan
The maximum amount of seller concessions allowed on an FHA loan is 6% of the sales price of the home.
This means that the seller can contribute up to 6% of the cost of the home towards the buyer’s closing costs or other expenses related to the purchase of the home.
It’s worth noting that these concessions are calculated based on the sale price of the home, not the appraised value. Also, the seller is not allowed to pay more than 6% of the sale price, even if the costs are greater than that.
For example, if a home is sold for $200,000, the seller can contribute up to $12,000 in concessions. This can be used towards closing costs, pre-paids, or other expenses that are related to the purchase of the home.
Conventional Loan
The maximum amount of seller concessions allowed on a conventional loan varies depending on the lender and the loan program. However, it is typically lower than the maximum allowed on an FHA loan.
Typically, the maximum seller concessions allowed on a conventional loan range between 3% to 9% of the sales price of the home. This means that the seller can contribute up to 9% of the cost of the home towards the buyer’s closing costs or other expenses related to the purchase of the home.
- If your down payment is less than 10%, the maximum seller contribution is 3%.
- If your down payment is 10 – 25%, the maximum seller concession is 6%.
- If your down payment is more than 25%, the seller can contribute up to 9%.
- If you’re buying an investment property, the seller’s contribution is limited to 2%, no matter what your down payment is.
VA Loan
VA loan regulations state that the seller can provide up to 4% in concessions.
These allowances may include payments towards a buyer’s judgments and debts, as well as the VA Funding Fee.
USDA Loan
With a USDA loan, the seller can contribute up to 6% of your loan amount. Unlike other loan types, this isn’t based on the home price or appraised value.
How to negotiate seller concessions
It is also worth noting that seller concessions are typically written into the contract, so it is important to read and understand the terms of any agreements before signing.
Here are a few tips on how to negotiate seller concessions:
- Do your research: Before you begin negotiating, research the typical costs associated with buying a home in your area. This will give you a good idea of what you can reasonably ask the seller to contribute.
- Make an offer: When you make an offer on a home, be sure to include a request for seller concessions. Be specific about what you are asking for and how much you are willing to pay.
- Be flexible: Be open to negotiating different types of concessions. For example, if the seller is unwilling to pay for closing costs, you may be able to negotiate a credit towards the purchase price of the home instead.
- Be prepared to compromise: The seller may not be willing to agree to all of your requests. Be prepared to compromise on certain concessions in order to reach an agreement.
- Seek Professional Help: Consider working with a real estate agent or a mortgage broker that has experience in negotiating seller concessions. They can help you to understand the process and will help you to make an offer that will be more likely to be accepted by the seller.
- Be Persistent: Remember that the seller may not agree to your first offer, but that does not mean the negotiations are over. Be persistent and continue to communicate with the seller to come to an agreement that benefits both parties.
The bottom line
In summary, seller concessions are a way for sellers to help buyers with the costs associated with buying a home and can also be used to make a home more attractive to potential buyers. They can help buyers who may not have the funds to cover all of the costs associated with buying a home and can also help to speed up the sale process for sellers.
Start your home purchase journey
Get answers to your questions and save thousands on your home loan by comparing different programs and interest rates.
