Seller Concessions… How to Reduce Cash at Closing!
What does concession mean?
Concessions generally refer to items or credits that may be issued to a buyer in the purchase of a property. For example, the seller may be paying a certain amount of the purchaser’s closing or settlement expenses, and this would be referred to as a seller concession.
Many people buying a home may not know about seller concessions, also known as seller contributions. The concept is 
basically this: The home buyer must pay for certain home financing costs, but an agreement can be made between the buyer and seller where the seller pays for those costs on the behalf of the buyer. These costs are paid when you close your home (hence, they are referred to as “closing costs”) and can include, but are not limited to:
- Discount points
- Fees for pulling credit
- Title insurance
- Processing fees
- Attorney’s fees
- Appraisal fees
- Origination fees
- Inspection fees
- Real estate taxes covering any period after the closing date
- Interest charges and hazard insurance covering any period after the closing date
- Homeowner association dues
These fees can add up at closing and is cash that will be needed at the close of escrow. Instead of you the buyer paying the fees why not keep more money in your pocket and negotiate in the contract to have the seller pay these for you.
When asking the seller for seller concessions there are limits depending on the type of mortgage you are obtaining that the seller can pay. It is important to know max seller concessions when writing the purchase contract.
Max Seller Concession:
- FHA – 6%
- VA – 4%
- USDA – 6%
- Conventional
- If 5%+ down – 3%
- If 10%+ down – 6%
- If 20%+ down – 9%
- Rental Properties – 2% regardless of down payment
For example, if you were to buy a home for $150,000 and getting an FHA mortgage the max seller concession you could negotiate for is 6% which would be $9,000. This $9,000 could go towards all your closing costs and buy down your interest rate to reduce your monthly mortgage payment.
On an FHA loan, the required down payment is 3.5% or $5,250 on a $150,000 sale price. So you could buy a home for as little is 3.5%. As you can see the max seller concessions when buying a home can be substantial.
It is key to have a real estate agent that is knowledgeable and has strong negotiating skills. Give us call today if you are interested in buying a home. We can help you buy a home and keep more CASH in your pocket!
*As always, please consult your mortgage professional and tax advisor.
