What Are Seller Concessions?

Seller concessions are the credits you receive from the seller to pay down a PORTION of your closing costs.

Keyword: portion

Closing on a home with a mortgage will require standard fees like title searches, insurance, taxes, appraisal, recording fees etc. They can pile up quickly!

So, having the seller pay a portion of the costs, is a very common practice.

The seller will use a portion of their equity from the sale to allow you to pay less at closing.

Seller concessions have a limit. Here are some standard limits:

Investment: 2%
Conventional: 3% (can be higher with larger down payments)
FHA/USDA/VA: 6%

This doesn't come without a cost though... often, the seller concessions are added to the purchase price in the negotiation phase.

For example, let's say a house was for sale for $97k. Instead of pay for all of the closing costs, you realtor suggests you put in an offer for $100k with $3k seller concessions. So, you'd receive $3k at closing to pay down your closing costs... but, ultimately, you just added the $3k into the loan amount. And now you have to pay interest on it over the life of the loan.

If you only plan on being in the property for less than 8 years, it might make sense to take seller concession and reduce up-front costs as much as possible.

If you plan on being in the property for a longer duration, you'll want to use up-front costs to lower total costs over the life of the loan.

Important note: seller concessions will never be used to pay down your down payment. Your down payment is considered the "minimum required investment" to close on your home.

So, what do you do if you have seller credit leftover after your closing costs are paid?

Purchase discount points! Buying discount points is also referred to as "buying down the rate". Essentially, you'll pre-pay interest on the loan to get a lower rate and reduce costs over the life of the loan.

Seller concessions are meant to help you offset the costs of closing on a home. They will very rarely cover every closing cost of your loan.

Make sure you talk with your realtor and lender on the best strategy for you! It's not a one-size-fits-all! Make sure your purchase aligns with you and your family's financial and emotional goals.


https://www.winthehouseyoulove.com/

Kyle Seagraves
Mortgage Consultant
Motto Mortgage Alliance
NMLS# 1701021

0:04 What Are Seller Concessions?
1:34 Seller concessions are limited y loan type
2:19 How does it affect your negotiation?
4:11 Discount points
4:25 Par rate
5:06 Main goal of seller concessions

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Motto Mortgage Alliance
https://www.winthehouseyoulove.com/
8900 N. Dixie Dr.
Dayton, OH 45414

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