Seller Concessions On Home Purchase To Cover Closing Costs

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Seller Concessions On Home Purchase To Cover Closing Costs

This BLOG On Seller Concessions On Home Purchase To Cover Closing Costs Was UPDATED On December 6th, 2018

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. Home buyers do not have to worry about closing costs. This is because it can be cover in the following ways:

  • Seller Concessions from home buyers
  • Lender Credit to cover closing costs by lenders

Cost Required On Home Purchase

There are two types of costs involving on a home purchase:

  1. Down Payment:
    • Home Buyers need to show that they have their own down payment on a home purchase
    • Down payments can be gifted
  2. Closing Costs:
    • Most home buyers do not have to worry about closing costs on a home purchase
    • This is because closing costs can be covered with either a seller concessions and/or lender credit

Down Payment Requirements On Home Purchase

Every loan program has their own down payment requirements.

The only two mortgage loan program that does not require any down payment on home purchase.

They are the following:

  1. VA Home Loans
  2. USDA Loans
  • The minimum down payment needed on a home purchase is 3.5% on a FHA mortgage loan
  • Minimum down payment required on a conventional loan is 3% for first time home buyers
  • 5% for home buyers
  • VA and USDA Loans do not require down payment and offer 100% financing
  • Closing costs can run more than the down payment and can run into thousands of dollars
  • FHA Loans allow up to 6% sellers concessions of the purchase price towards closing costs
  • What this means is that a home seller can give a home buyer up to 6% of the home purchase price as a sellers concession:
    • so the home buyer can use it towards any closing costs.
  • VA Loans allow up to 4% sellers concessions.
  • Conventional Loans allow up to 3% sellers concessions on owner occupant properties
  • Second homes and 2% on investment homes
  • Sellers concessions is very important in many home purchases
  • Sellers concessions is often a necessity to make the deal happen
  • This is because many home buyers only have the down payment and not the closing costs on a home purchase

What Can Seller Concessions Be Used For?

The seller concessions can be applied towards and 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-Paids:
    • Real estate and insurance escrows
  • Other costs associated with closing

Sellers Concessions To Make Home Purchase Transactions Work

Seller contributions towards closing costs is a great program for both the buyer and seller.

  • For the buyer who is limited with funds, having the seller pay the closing costs will make the home purchase possible
  • For the seller who is offering the concession towards closing costs, it makes the sale of the home possible:
    • Ultimately, the seller gets their net price from the sale of the house
  • Bottom line is that the seller does not lose anything
  • This is because the sellers concessions is part of the home purchase price
  • For example, here is case scenario on home purchase:
    • if the seller wants to net $100,000 for his home
    • the seller can still get his $100,000
    • and give a $6,000 sellers concession to the home buyer by making the real estate purchase contract $106,000

Closing Costs & Sellers Concessions

Before shopping for a home, make sure that the pre-approval is solid.

  • Most loan officers will run credit and AUS FINDINGS prior to 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 down payment:
    • This is depending what county and state the property is
  • Some states costs much more than other states due to tax stamps and other state fees
  • Home buyers who are limited on funding besides the down payment they can get closing costs covered with sellers concessions or lender credit
  • The majority of home sellers have no problem in offering seller concessions
  • But home buyers need to make sure their realtor request the sellers concession
  • The seller contribution needs to be written on the real estate sales contract
  • Make sure realtor and loan officers communicate prior to making an offer

The Gustan Cho Team at Loan Cabin Inc. has no lender overlays on government and conventional loans. Home buyers who have any questions or need to get pre-approved, please contact us at 262-716-8151 or text us for faster response. Or email us at gcho@loancabin.com.

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