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Sellers Concessions Overages On Home Purchase

Gustn Cho Associates
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Sellers Concessions Overages On Home Purchase

This BLOG On Sellers Concessions Overages On Home Purchase Was UPDATED On June 6th, 2019

Sellers Concessions
Gustan Cho Associates Mortgage Group

Sellers concessions are closing cost credits given by the home seller to buyers to cover part, most, or all of the home buyer’s closing costs.  Sellers concessions can be used for any type of closing costs incurred by the home buyer.

Sellers Concessions can be used to cover the following closing cost but cannot be used for down payment on home purchase:

  • title charges
  • state and county transfer stamps and fees
  • recording fees
  • attorneys costs
  • inspection fees
  • upfront points
  • appraisal fees
  • homeowners insurance
  • pre-paids
  • escrows
  • any other fees and costs associated with the purchase and closing of the mortgage loan
  • However, sellers concessions cannot be used towards down payment of the home purchase.

Sellers concessions can also be used to buy discount points. Discount Points are used to lower borrower’s mortgage rates.

Maximum Amount Of Sellers Concessions Allowed

Maximum Amount Of Sellers Concessions Allowed
Gustan Cho Associates

Depending on which mortgage loan program a mortgage loan applicant chooses, each mortgage loan program has their own maximum amount of sellers concessions allowed.

  • Under HUD, the parent of FHA,  FHA allows a maximum of 6% sellers concessions
  • For VA loans, the maximum amount of sellers concession sellers can offer buyers is 4%
  • USDA loans allow a maximum sellers concession of 6%
  • With conventional loans, if purchasing an owner occupant home, a maximum of 3% sellers concession is allowed
  • If home buyer is purchasing a second or vacation home, a maximum of 3% sellers concession from the home seller to the home buyer is allowed
  • However, if buyer is purchasing an investment home, then the maximum a home seller can offer in sellers concessions is no more than 2% sellers concession to the investment home buyers

What Happens If There Is Overage In Sellers Concessions

What Happens If There Is Overage In Sellers Concessions
Gustan Cho Associates

Overages in sellers concessions will need to go back to the home seller. Cannot go to the home buyer in the form of cash or other incentives.

  • In general, closing costs average about 2% of the home purchase price depending what county and state the home is located
  • FHA loans allow up to a 6% sellers concessions for the home seller to give the home buyer
  • If the home buyer requests a 6% sellers concession from the home seller and only uses 2%, the home buyer needs to return the 4% of the unused sellers concession to sellers
  • Requesting a kickback of the unused portion of the sellers concessions is not allowed under any circumstances and is considered mortgage fraud

Down Payment And Closing Costs

Down Payment And Closing Costs
Gustan Cho Associates

There are two types of costs that a home buyer is required to pay on any home purchase.

  • The first is the down payment
  • The down payment required varies depending on the loan program buyer chooses
  • Two loan programs, USDA and VA, do not require any down payments
  • FHA loans require 3.5% down payment
  • Owner occupied conventional loans require 3% down payment for first time home buyers
  • 5% down payment for traditional conventional loan programs
  • Second home conventional loans require 10% down payment
  • Investment homes require 20% down payment
  • Jumbo mortgages require 20% down payment
  • Condotel unit mortgage loans require 25% down payment
  • Non-Warrantable condominium purchases requires 20% down payment

Closing Costs On Mortgage Loans

Closing Costs On Mortgage Loans
Gustan Cho Associates

All home purchase transactions have closing costs.

  • Closing costs are costs associated with the closing of a home purchase
  • Examples of closing costs include the following:
    • title charges
    • transfer stamps
    • inspection costs
    • appraisal fees
    • upfront points
    • homeowners insurance
    • pre-paid items
    • any other costs and fees associated with the closing of a home loan

Most home sellers will give a home buyer closing costs credit via sellers concessions. Most buyers do not have to worry about closing costs.  In the event, if the home seller does not want to give a sellers concession for whatever reason, lenders can offer lenders credit towards home buyers closing costs in lieu of a higher mortgage rate. For more information on this blog or other topics, please contact us at 262-716-8151 or text us for faster response. Or email us at gcho@loancabin.com.

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