Lender Credit And Sellers Concessions For Closing Costs

This BLOG On Lender Credit And Sellers Concessions For Closing Costs Was UPDATED On June 30, 2017

Lender Credit And Sellers Concessions are allowed on mortgage loan programs.

  • However, Lender Credit And Sellers Concessions can only be used for closing costs and not down payment.
  • Down payment on home purchase needs to come from the home buyer and lender credit and sellers concessions cannot be used towards down payment.
  • Many hard working American families work extremely hard to save for a down payment towards a home purchase.  
  • During these tough economic times, many people are living pay check to pay check and saving can be rather difficult.
  • Most home buyers do not have to worry about closing costs and just need to worry about the down payment on home purchase. 

Down Payment And Closing Costs On Home Purchase

The two big costs in a home purchase are the following:

  1. Down Payment
  2. Closing Costs

Down Payment requirements depends on the type of loan program:

  •  3.5% minimum down payment is required on FHA Loans.
  • No down payment required on VA Loans and USDA Loans.
  • 3% down payment is required on conventional loans for first time home buyers.
  • Fannie Mae and Freddie Mac considers first time home buyers as buyers who did not have any ownership on a home in the past three years.
  • Down payment requirement is 5% on conventional loans for owner occupant homes.
  • Most home buyers have the down payment for a home purchase but not the closing costs.
  • Closing costs can be more than the down payment depending on the county and state the property is located.
  • As long as home buyers have the required down payment requirement they do not have to worry about closing costs.
  • Closing costs can be paid with lender credit and sellers concessions.

Lender Credit Versus Mortgage Rates

The two ways where a home buyer does not have to come up with closing costs on home purchase:

  • Lender Credit And Sellers Concessions
  • We have covered sellers concessions on previous blogs so we will not cover it in detail. 
  • A sellers concession is when a home seller gives a sellers credit towards closing costs to the buyer.
  • If there is enough sellers concessions, home buyer does not have to pay closing costs. 
  • If borrower is short on sellers concessions, lender can give borrower lender credit.
  • Lenders will offer lender credit towards closing costs, however, the borrower will get a higher interest rate on their home loan for lender credit.
  • Closing costs includes title charges, real estate tax stamps, transfer stamps, appraisal fees, underwriting fees, home inspection fees, attorney fees, and other costs associated with the closing of the home. 
  • By law, the maximum sellers concession allowed is 6% of the purchase price of the home. 
  • Most sellers do not mind offering a sellers concession to make the deal happen. 
  • However, on many occasions, sellers do not want to give buyers a sellers concession. 
  • In cases where sellers will not offer a sellers concession to the home buyer, there is another option. 
  • Lender Credit towards closing costs.

How Does Lenders Credit Towards Closing Costs Work?

Lender Credit is offered by lenders. Lender Credit is when the lender can offer borrowers a certain amount in lieu of higher mortgage interest rates. Nothing is free in this world.

  • Borrowers who are short on funds can get lender credit towards closing costs. 
  • To get a lenders concession towards closing costs, the mortgage loan borrower needs to accept a higher mortgage rate. 
  • For example, if a mortgage loan borrower got quoted a mortgage rate of 3.25% on a 30 year fixed rate mortgage loan and he or she does not have enough money for closing costs, the lender can cover the closing costs with a lender credit but a higher mortgage rate like 3.5%. 
  • Lenders Credit towards closing costs can only be used for covering the mortgage loan borrower’s closing costs.
  • Overages in lender credit cannot go to the mortgage borrower or used for down payment.

2017 Update

This mortgage blog article post has been updated on June 30, 2017.

If you are interested in purchasing a home and have the down payment but not the closing costs, please contact me at 262-716-8151 or email me at gcho@gustancho.com.  You can also visit me at www.gustancho.com

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Related> Closing Costs

The information contained on Gustan Cho Associates website is for informational purposes only and is not an advertisement for products offered by The Gustan Cho Team @ Gustan Cho Associates or its affiliates. The views and opinions expressed herein are those of the author and/or guest writers of Gustan Cho Associates Mortgage & Real Estate Information Resource Center website and do not reflect the policy of Gustan Cho Associates Lenders Network, its officers, subsidiaries, parent, or affiliates.

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