Lender Credit And Sellers Concession For Buyers Closing Costs
This BLOG On Lender Credit And Sellers Concession For Buyers Closing Costs Was UPDATED On July 15, 2017
Sellers Concession For Buyers Closing Costs Can Cover Most Or All Of Home Buyers Closing Costs. If home buyers are short on closing costs with lender credit, lenders can give buyers lender credit in lieu of higher mortgage interest rates:
- Home Buyers need to come up with down payment and closing costs on the home purchase.
- VA Loans and USDA Loans do not require down payment but do require closing costs.
- Besides the down payment on the home purchase, all mortgage borrowers will have closing costs on purchase and refinance mortgage loans
Examples Of Closing Costs
Closing costs on a home purchase are the following:
- Appraisal fees
- Attorneys fees
- Title charges
- Recording Fees
- Transfer Stamps
- Home inspection fees
- Prepaid closing costs which are upfront escrows for taxes and insurance
- Other fees which can accumulate thousands of dollars.
How Much Are Closing Costs
Closing costs vary depending on where the real estate purchase transaction takes place. Down payment is a fixed percentage, however, closing costs vary from county to county and state to state.
- Every county and state has different transfer stamp and intangible tax fees and recording charges.
- Even if home buyers have the funds to cover closing costs, why not keep those funds for reserves for future remodeling or repairs and have closing costs covered with sellers concessions and/or lender credit.
- One of the most common and popular ways of covering all of closing costs is through a sellers concession for buyers closing costs.
What Is Sellers Concession For Buyers Closing Costs
A sellers concession for buyers closing costs is allowed for the home seller to contribute towards the closing costs of the home buyer by the home seller on a home purchase.
- Every mortgage loan program has a different amount of sellers concession a home seller can give a home buyer.
- FHA mortgage loans allow up to a 6% sellers concession towards closing costs.
- For example, if the seller wants a net amount of $100,000 for the bottom line when he closes on his house, the purchase contract can be for $106,000 with a $6,000 sellers concession towards closing costs.
- By structuring the deal this way, home buyer will not have to come up with closing costs.
- The sellers concession can be applied towards any closing costs such as title charges, upfront mortgage insurance premium, attorneys fees, appraisal fees, transfer stamps, and other third party closing costs.
- Sellers concession for buyers closing costs cannot be used towards the home buyers down payment.
- Any overages of sellers concession needs to go back to the home buyer.
- Home seller cannot give a cash kickback to the home buyer.
- Try negotiating on the best purchase price possible with the seller of the home.
- Sellers concessions is a great negotiation tool for home sellers.
Maximum Sellers Concessions Allowed
Every loan program has the maximum sellers concessions allowed:
- Conventional Loans allow up to 3% of sellers concessions for primary and second home financing
- Up to 2% sellers concession for investment home financing on conventional loans.
- VA Loans allows up to 4% in sellers concession for buyers closing costs.
- Most Jumbo Loan Programs will allow for 3% sellers concessions.
- Most NON-QM Loans and Bank Statement Loans allow up to 6% Sellers Concessions.
Sellers Concession Overages
Any sellers concession overages needs to go back to sellers. However, it is alright to have seller concession overages because any overages can go towards buying points to pay down mortgage interest rates.
- On the above example, if a home buyer offered a seller a $106,000 for the home and requested a $6,000 sellers concession and the closing costs totaled only $4,000, the $2,000 left over sellers concession goes straight back to seller.
- A seller cannot give buyers the left over proceeds of a sellers concession.
- So remember not to waste the sellers concession.
- Left over sellers concessions can be used to buy discount points.
- Discount Points is when a borrower pays the lender for a lower interest rate.
What Is Lender Credit
Mortgage Lender Credit is when a lender gives a credit to borrower to cover closing costs in lieu of higher interest rates. The higher interest rate will remain for the term of the loan. It is best to get a lower interest rate and not get a lender credit. Lender credit cannot be used for down payment and is only allowed for closing costs.