Sellers Concession Overage Mortgage Guidelines On Home Purchases
This Article Is About Sellers Concession Overage Mortgage Guidelines On Home Purchases
There are two types of costs on home purchase:
- Down Payment
- Closing Costs
The down payment is required by all home buyers on a home purchase. Most buyers do not have to worry about closing costs. Closing costs can be covered with the following:
- Sellers Concessions by home sellers towards buyers closing costs
- Lender Credit by the mortgage company in lieu of higher mortgage rate
In this article, we will discuss and cover Sellers Concession Overage Mortgage Guidelines On Home Purchases.
How To Cover Closing Costs With Sellers Concessions
Home Buyers with only the down payment and to offset closing costs often request a seller’s concession towards closing costs. Most sellers will offer sellers concessions.
The realtors will negotiate the seller’s concessions when they negotiate the real estate purchase contract.
- A sellers concession, or sellers contribution, is a dollar amount that a property seller will give a home buyer towards the buyer’s closing costs
- However, if you do not use up all of the seller’s concession and have a sellers concession overage, then the leftover proceeds go back to the seller and not the buyer
It is illegal for homebuyers to keep any overage in seller concessions. Any overage needs to go back to the home seller.
Kickbacks Are Not Allowed With Overages
Giving the leftover sellers concession to the home buyer is known as a kickback and it is not allowed.
- The Federal Housing Administration (FHA) allows up to a 6% sellers concession for FHA insured mortgage loans
- Conventional mortgage loans allow up to a 3% sellers concession towards a buyer’s closing costs on owner occupant properties
- Conventional Loans allow 2% sellers concessions on investment property financing
- VA Loans allow up to 4% sellers concessions
- USDA allows up to 6%
Sellers concessions can only be used for closing costs and not towards the down payment.
Typical Closing Costs
Closing costs are the following:
- title charges
- attorneys fees
- transfer stamps
- transfer taxes
- homeowners insurance
- other costs and fees associated with closing the loan
- Sellers concession overage cannot be used towards the down payment
Any sellers concession overage needs to go back to the seller.
Do Not Waste Sellers Concession Overages
If borrowers have sellers concession overage, the loan officer needs to use it for additional closing costs such as the following:
- Buying down the rate
- Paying upfront mortgage insurance upfront and not rolling into the loan
Can You Use Sellers Concession Overage For Cash To Close: Closing Costs
Homebuyers will be required to come up with the down payment and closing costs on a home purchase.
- Down payment funds are normally 3.5% down payment for FHA insured mortgage loans
- 5% down payment for conventional mortgage loans
- No down payment requirement on VA Home Loans and USDA Loans
- On top of the down payment, there are closing costs
- Closing costs vary depending on the county and the state the property is at
- Closing costs can range anywhere from 2% to 5% or more
- Most sellers have no problem giving a sellers concession to a home buyer
Let’s take a case scenario:
- Say a home seller wants a bottom-line net price of $100,000 and not a dime less
The home buyer is requesting a 6% sellers concession since it is an FHA insured mortgage loan.
How Do Sellers Concessions Work?
What the seller will do is raise the purchase price to $106,000. The sellers of the property will give the home buyer a $6,000 sellers concession towards the buyers closing costs where the homebuyer only needs to come up with the down payment.
Sellers concessions can be used for prepaid as well:
- Two months property tax escrows
- Two months of homeowners insurance escrows as well as paying the one-year homeowner’s insurance premium
What happens if there is a sellers concession overage?
Sellers Concession Overage And How It Works
As mentioned earlier, sellers concession overage cannot go to the home buyer. If all of the funds cannot be used for closing costs, it goes back to the seller.
- It needs to go back to the seller
- However, if there is a sellers concession overage, borrowers do not want to waste it
- Many times when I run into a sellers concession overage, I use the excess funds to buy down the mortgage loan borrower’s mortgage rates
- Loan Officers normally advise to buy down mortgage rates by paying points
- Paying down the rate by paying points is part of closing costs
- Borrowers can also use it for paying upfront FHA Mortgage Insurance Premium instead of rolling the FHA MIP into the balance of their FHA Loan
Home Buyers who need to qualify for a mortgage with a direct lender with no mortgage overlays can contact us at GCA Mortgage Group at 262-716-8151 or text us for a faster response. Or email us at [email protected] The team at Gustan Cho Associates is available 7 days a week, evenings, weekends, and holidays.