Homebuyers should ask for seller concessions from the home seller to pay closing costs. There are two types of costs for a home purchase. The down payment and closing costs. Most homebuyers do not have to come up with closing costs. If structured the home purchase contract correctly, homebuyers do not have to worry about the closing costs. Homebuyers just need to come up with the down payment. Seller concessions are closing cost credits given by the home seller to buyers to cover part, most, or all of the home buyer’s closing costs. Proceeds from seller concessions can be used for any closing costs incurred by the home buyer.
What Can Seller Concessions Be Used For?
Requesting a kickback of the unused portion of the seller concessions is not allowed under any circumstances and is considered mortgage fraud. Sellersconcessions can be used to cover the following closing costs, but cannot be used for the down payment on the home purchase:
- title charges
- state and county transfer stamps and fees
- recording fees
- attorneys costs
- inspection fees
- upfront points
- appraisal fees
- homeowners insurance
- pre-paid
- escrows
- any other fees and costs associated with the purchase and closing of the mortgage loan
Homebuyers cannot use seller concessions cannot be used towards the down payment of the home purchase. Seller concessions can also be used to buy discount points. Discount Points are used to lower borrowers’ mortgage rates.
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Are There Limits For Seller Concessions
Depending on which mortgage loan program an applicant chooses, each mortgage loan program has their maximum amount of seller concessions allowed. Under HUD, the parent of FHA, HUD allows a maximum of 6% seller concessions. For VA loans, the maximum amount of seller concession home sellers can offer buyers is 4%. USDA loans allow a maximum seller’s concession of 6%. Conventional loans allow a maximum of 3% seller concessions if purchasing an owner-occupant home. If a home buyer is purchasing a second or vacation home, a maximum of 3% seller concessions from the home seller to the home buyer is allowed.
What Happens If There Are Overages In Seller Concessions
Overages in seller concessions will need to go back to the home seller. It cannot go to the home buyer through cash or other incentives. In general, closing costs average about 2% of the home purchase price depending on what county and state the home is located in. Every loan program has its own maximum seller concession guidelines on how much the home seller can contribute towards a homebuyer’s closing costs. FHA loans allow up to 6% seller concessions for the home seller to give the home buyer. If the home buyer requests a 6% seller concession from the seller and only uses 2%, the buyer must return the 4% of the unused sellers concession to sellers.
Down Payment and Closing Costs Requirements on Home Purchase
There are two types of costs that a home buyer is required to pay on any home purchase. The first is the down payment. The down payment required varies depending on the loan program the buyer chooses. Two loan programs, USDA and VA, do not require any down payments. FHA loans require a 3.5% down payment. Owner-occupied conventional loans require a 3% down payment for first-time home buyers and a 5% down payment for traditional conventional loan programs. Second-home conventional loans require a 10% down payment.
Using Lender Credit For Closing Costs
If the homebuyer is short in closing costs, the lender can offer lender credit instead of a higher mortgage rate. Investment homes require a 20% down payment. Jumbo mortgages require a 20% down payment. Condotel unit mortgage loans require a 25% down payment. Non-warrantable condominium purchases require a 20% down payment. Qualify for Mortgage Loans, click here
How Much Should Mortgage Closing Costs Be?
All home purchase transactions have closing costs. Closing costs are costs associated with the closing of a home purchase. Examples of closing costs include the following:
- title charges
- transfer stamps
- inspection costs
- appraisal fees
- upfront points
- homeowners insurance
- pre-paid items
- any other costs and fees associated with the closing of a home loan
What Are Lender Credit Toward Buyers Closing Costs
Most home sellers will credit a home buyer closing costs via seller concessions. Most buyers do not have to worry about closing costs. If the home seller does not want to give a sellers concession for whatever reason, lenders can offer lenders credit towards home buyer closing costs.
Seller concessions cannot be used for the down payment. It can only be used for closing costs and pre-paid costs.
Lenders offer lender credit where borrowers can cover closing cost in place of a higher mortgage rate. For more information on this blog or other topics, please get in touch with us at 800-900-8569 or text us for a faster response. Or email us at gcho@gustancho.com.
How Can I Waive Paying Closing Costs on My Home Purchase and Get It Paid?
Many home buyers have limited funds when buying a new home. There are ways of being creative on a home purchase and more often than not. Homebuyers do not have to worry about closing costs. This is because it can be covered in the following ways: Seller concessions from home buyers. Lender credit to cover closing costs by lenders. In the following paragraph, we will discuss using seller concessions to cover closing costs on a home purchase.
How Much Money Do I Need To Buy a House With a Mortgage
There are two types of costs involving home purchase: the down payment and the closing costs. Home buyers must show that they have a down payment on a home purchase. The down payments can be gifted. Most homebuyers do not have to worry about closing costs on a home purchase. This is because closing costs can be covered with either seller concessions or lender credit.
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Down Payment Requirements on Home Purchase
Every loan program has its down payment requirements. The only two mortgage loan programs do not require any down payment on a home purchase. They are the following:
The minimum down payment needed on a home purchase is 3.5% on an FHA mortgage loan. The minimum down payment on a conventional loan is 3% for first-time homebuyers and 5% for home buyers. VA and USDA loans do not require a down payment and offer 100% financing.
HUD Guidelines on Seller Concessions
FHA Loans allow up to 6% seller concessions of the purchase price towards closing costs. What this means is that a home seller can give a homebuyer up to 6% of the home purchase price as a sellers concession. So the home buyer can use it towards any closing costs.
VA Guidelines on Seller Concessions
VA Loans allow up to 4% seller concessions. Conventional loans allow up to 3% seller concessions on owner-occupant properties. Second homes and 2% on investment homes. Seller concessions are very important in many home purchases. Seller concessions are often a necessity to make the deal happen. This is because many home buyers only have the down payment, not the closing costs on a home purchase.
What Can Seller Concessions Be Used For?
The seller concessions can be applied towards closing costs associated with the home purchase. Here are examples of closing costs:
- Discount points
- Title charge charges
- Transfer stamps
- Recording fees
- Home Inspections
- Appraisal costs
- Surveys
- Mortgage loan origination fees
- Mortgage processing and underwriting fees
- Attorneys fees
- Inspection fees
- Pre-Paid:
- Real estate and insurance escrows
- Other costs associated with closing
How Seller Concessions Help Homebuyers Not Come Out of Pocket For Closing Costs
Seller contributions towards closing costs are great for both the buyer and seller. For Buyers with limited funds, having the seller pay the closing costs will make the home purchase possible. Home sellers are worried about offering seller concessions because the house may not appraise.
If the house does not appraise with seller concessions, the home seller can lower the seller concession or get rid of it altogether.
The home seller offering the concession towards closing costs makes the home sale possible. Ultimately, the seller gets their net price from the house sale. The bottom line is that the seller does not lose anything. This is because the seller concessions are part of the home purchase price.
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Case Scenario On How a Home Purchase With Seller Concessions Work
Closing costs can run more than the down payment into thousands of dollars. For example, here is a case scenario of a home purchase:
- if the seller wants to net $100,000 for his home
- the seller can still get his $100,000
Giving the seller concessions of $6,000 to the homebuyer increases the real estate purchase price to $106,000. The seller does not give anything for nothing because the seller has $6,000 to the bottom line price they wanted. The homebuyer does not come up with closing costs because the seller’s concessions pay it.
How Paying Closing Costs With Seller Concessions Works
Before shopping for a home, make sure that the pre-approval is solid. Most loan officers will run credit and AUS FINDINGS before issuing a pre-approval letter. Loan officers should do a full credit analysis.
Loan officers can also estimate tentative closing costs and the down payment required.
Loan Officers will also get you an approximate monthly housing payment. Closing costs can be more than the down payment. This depends on what county and state the property is in. Some states cost more than others due to tax stamps and other state fees.
Lenders Can Offer Lender Credit For Closing Costs In Place of Higher Rate
Homebuyers who are limited on funding besides the down payment can get closing costs covered with seller concessions or lender credit. The majority of home sellers have no problem in offering seller concessions.
Every homebuyer should request a seller concession from home sellers through their real estate agent. Home buyers need to make sure their realtor requests the sellers concession.
The seller’s contribution must be written on the real estate sales contract. Make sure realtors and loan officers communicate before making an offer. Many home buyers often get confused about how seller concessions Work. However, if the buyer is purchasing an investment home, the maximum a home seller can offer in seller concessions is no more than 2% sellers concession to the investment home buyers.
