Seller Concessions: What Are They and How Can They Help?

Blog posted On August 05, 2021

Many buyers look at one number when shopping for a home – the number on the price tag. While a home’s sales price plays a large role in the cost of your future payments and how much your mortgage loan will be, it’s not the only cost you should be considering in your budget. Aside from interest rates and your down payment, another important home buying factor is your closing costs.

Closing cost fees

There are several different costs you will have to pay upfront when you close on your home.

• Appraisal fee – Covers the cost of a professional appraiser estimating your home’s worth.
• Home inspection – Pays for a professional analysis and report on the condition of the home that outlines and repairs it may need.
• Title insurance – Protects you from someone contesting the ownership of the home and messing up the sale.
• Escrow – A reserve fund that can cover taxes, insurance, etc.
• Points – Paying for points can lower your mortgage rate.
• Recording fee – Covers the cost of getting the official title transfer recorded in government records.
• REALTOR^® commissions – Pays for your real estate agent’s service throughout the search and purchase process.

What are seller concessions?

Closing cost fees can add up quickly. The expense of closing costs on top of your down payment could be a factor preventing you from buying a home. One way you could ease some of this financial strain is through “seller concessions.” Seller concessions occur when the seller financially contributes to some of your closing costs.

When to ask for seller concessions

Asking for seller concessions works best in a buyer’s market. When there are more people looking to sell rather than buy, a seller might be incentivized. In a seller’s market, buyers have less leverage. If your seller does agree to pay some (or all) of your closing costs, they may also raise the sales price. In this scenario, you technically still pay for your own closing costs – just over time instead of upfront. This will increase your total loan amount, so be prepared for higher monthly payments. To officially ask for seller concessions, your real estate agent will write out an offer to the seller, specifying a specific amount you hope for them to pay.

Seller concession limits

Lenders limit the amount of seller concessions you can receive to prevent home sales from artificially inflating. You can’t ask for more seller concessions than you will be paying. If your closing costs are $3,000, you won’t be able to ask your seller for anything higher than $3,000. Different loan types have different limits on seller concessions.

• Conventional Loan primary residence – If you make a down payment of 0% to 10%, the maximum seller concessions are 3%. If you make a down payment of 10%* to 25%*, the maximum seller concessions are 6%. If you make a down payment over 25%*, then the maximum seller concessions are 9%.
• Conventional Loan investment property – Maximum seller concessions of 2%.
• FHA Loan – Maximum seller concessions of 6%.
• VA Loan – Maximum seller concessions of 4%.
• USDA Loan – Maximum seller concessions of 6%.

Alternatives to seller concessions

If you’re looking to buy in a seller’s market but can’t afford your closing costs, there are a few solutions other than seller concessions.

• Explore low down payment loans – Making a smaller down payment can give you more money for closing costs. We offer several low down payment options including FHA Loans, VA Loans, USDA Loans, Fannie Mae HomeReady^®, and Freddie Mac HomePossible^®.
• Consider down payment assistance programs – Certain down payment assistance programs might pay for closing costs as well. If not, they still will help significantly on the cost of your down payment, and help you better afford your closing costs.
• Build your savings a little bit longer – There will always be homes buy. If you don’t need to move now, consider building your home-buying savings a little bit longer. 
• Search for lower-priced homes – Another option is expanding your home search for properties that are slightly less expensive. This way, you can put more money toward closing costs without exceeding your budget.

There are several different ways you can make your home buying dream come true – and we would love to help. If you would like to explore the down payment assistance options in your area or see which loans you could qualify for, contact us today!

*Payment example: If you choose a $250,000, 30 year loan at a fixed rate of 3.3% (APR 3.5%), you would make 360 payments of $1,122.61. Payment stated does not include taxes and insurance, which will result in a higher payment.

Source: The Balance