Sellers Credit And Lenders Concession Towards Closing Costs
This BLOG On Sellers Credit And Lenders Concession Towards Closing Costs Was UPDATED On July 15, 2017
Home buyers have two costs on a home purchase:
- Home Buyers are required to put a down payment on a home purchase with the exception of VA and USDA Loans.
- Closing Costs
Down Payment On Home Purchase
Down Payment is a fixed amount.
- FHA mortgage loans require a minimum of a 3.5% down payment and conventional loans normally require a minimum of a 5% down payment.
- Owner Occupant Conventional Loans require 3% for first time home buyers and 5% for seasoned home buyers.
- Second Home Financing require 10% down payment.
- Investment Home Loans require 20% down payment.
- VA Loans and USDA Loans do not require down payment.
- Jumbo Mortgages Required 10% to 20% down payment.
- NON-QM and Bank Statement Mortgage Loans require 20% down payment.
- Hard Money Loans require 20% or more down payment.
Whether it is a purchase or refinance mortgage transaction, there are always closing costs.
- Besides the down payment are closing costs.
- Home buyers are responsible for closing costs which can be as much or more than the down payment.
- However, there are ways to offset paying for closing costs by either getting a sellers concession or getting a lenders concession towards closing costs.
Sellers Concessions Towards Closing Costs
Property sellers can contribute towards buyers closing costs by offering home buyers a sellers concession or sellers contribution towards closing costs.
- Sellers are allowed to contribute a maximum of 6% of the purchase price towards buyers closing costs on FHA Loans.
- VA allows up to 4% sellers concessions.
- USDA permits up to 6% sellers concessions.
- Owner occupant and second home conventional loans allow up to 3% sellers concessions.
- Conventional Investment Home Loans allow up to 2% sellers concessions.
- Non-QM Loans and Bank Statement Mortgage Loans allow up to 4% sellers concessions.
- Jumbo Mortgages allow up to 3% sellers concessions.
- Any left over proceeds cannot go to the buyer in the form of a cash credit and needs to go back to home seller.
- To avoid seller concession overages going back to seller, overages can be used to purchase discount points to buy down mortgage rates.
Not Coming Up With Closing Costs On Home Purchase
In the event the home buyer cannot get a sellers concession or sellers contribution towards the buyers closing costs and the home buyer does not have funds besides the down payment, the home buyer can get a lenders concession or lenders credit towards closing costs.
- How this works is for a higher mortgage rate, the mortgage lender will cover a set amount of funds and credit the mortgage loan borrower to cover borrowers closing costs.
- Closing costs include title charges, transfer stamps, attorneys fees, inspection fees, appraisal fees, prepaid closing costs, and other third party charges that is incurred in closing the mortgage loan.
Example Of Lender’s Credit
- For example, if a mortgage loan borrower is quoted a mortgage rate of 3.75% for a FHA insured mortgage loan, the mortgage loan borrower can get a lenders concession of $5,000 ( sample figure ) towards closing costs of $5,000 by getting a higher mortgage rate of 4.25%.
- Lenders concession or lenders credit towards closing costs is very common for new home buyers who do not want to pay more than they have to but can afford the extra monthly payment.