Seller Concession Guide

Introduction: Understanding Seller Concessions

In real estate transactions, a seller concession is an agreement where the seller of a property agrees to pay a portion of the closing costs or provide other financial incentives to help facilitate the sale. This concession is not a discount on the property's sale price; instead, it's an arrangement to alleviate some of the financial burdens on the buyer, making the purchase more accessible or appealing.

Seller concessions can cover a variety of costs, including but not limited to:

• Closing costs (e.g., title insurance, recording fees, appraisal fees)
• Prepaid items (e.g., property taxes, homeowner's insurance)
• Loan-related fees (e.g., origination fees, discount points to lower interest rates)
• Inspection and repair credits

The rationale behind seller concessions is multifaceted. For sellers, offering concessions can make their property more attractive in competitive markets or expedite the sale process. Concessions can significantly reduce the money required at closing for buyers, particularly those who might be cash-strapped or looking to save on upfront expenses.

However, it's important to note that seller concessions are not freebies; they often involve negotiation and have certain limitations. These limitations can be influenced by factors such as the buyer's loan type, the buyer's down payment, and the property's intended use (e.g., primary residence, second home, investment property). Lenders typically cap seller concessions to prevent the loan amount from exceeding the home's value, ensuring the loan remains secure.

In the following sections, we'll dive into how seller concessions vary across different types of loans, such as Conventional, FHA, VA, and USDA loans, and how factors like down payment percentages and occupancy types affect the allowable concessions.

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Conventional Loans

• Less than 10% Down Payment: Maximum seller concession is 3% of the sales price.
• 10% to 25% Down Payment: Maximum seller concession is 6% of the sales price.
• More than 25% Down Payment: Maximum seller concession is 9% of the sales price.

FHA Loans

• All Down Payments: Maximum seller concession is 6% of the sales price.
• This is an explanation of FHA restrictions and how concessions can be used for closing costs, prepaid expenses, discount points, and up to six months of mortgage payments.

VA Loans

• All Down Payments: Seller can pay the buyer's loan-related closing costs.
• Seller Concessions: Up to 4% of the sales price can be used for buyer's costs that do not count as loan-related closing costs, like prepaid expenses, insurance, and VA funding fees.

USDA Loans

• All Down Payments: Seller concessions are not limited by a specific percentage but cannot exceed actual closing costs and certain approved expenses.
• Note how USDA loans are designed for rural homebuyers and the specific requirements that might apply.

Additional Notes

• It is essential to check the most current regulations as they can change.
• This is a reminder that individual lenders may have restrictions within these loan types.