Sellers Concessions And Closing Costs Mortgage Guidelines
This BLOG On Sellers Concessions And Closing Costs Mortgage Guidelines On Home Purchase Was UPDATED On November 20th, 2018
There are a lot of costs involved when purchasing a new home.
- On FHA insured mortgage loans, the minimum down payment required is 3.5%
- On conventional mortgage loans, the minimum down payment required is 5%
- There are 3% down payment conventional mortgage loan programs as well
- But the credit criteria is stricter than the 5% down payment conventional mortgage loan program
- Besides the down payment, a home buyer will also encounter closing costs that sometimes can be more than the down payment
Sellers Concessions And Closing Costs: What are Closing Costs?
Closing costs includes title charges, transfer stamps, inspection fees, appraisal fees, underwriting fees, attorney fees, and other fees depending on the state you are closing your new home at.
- Besides closing costs, a home buyer will probably need to spend money on moving costs, new furniture, and minor repairs on their new home
- By requesting a sellers concession towards a buyer’s closing costs can be a phenomenal advantage to the new home buyer
Florida Mortgage Broker Advice: What is Seller’s Concession?
Sellers concessions and closing costs go hand in hand. Sellers concession towards closing costs is allowed with most mortgage loan programs.
- FHA allows up to 6% in sellers concessions towards buyers closing costs
- VA allows 4%
- USDA allows 6%
- Owner occupant conventional loans cap sellers concessions to 3%
- Investment properties is capped at 2% with conventional loans
- In many cases, having a sellers concession makes a real estate purchase happen
- This is because many real estate home buyers are limited with funds
- Some home buyers only have the down payment and cannot afford closing costs
- There are two ways of covering for closing costs on a home purchase
- The first method is by getting a sellers concession and the second method is by getting a mortgage lender’s credit towards closing costs in lieu of accepting a higher mortgage rate
Case Scenario On Sellers Concessions And Closing Costs
For example, let’s say John Smith is buying a $200,000 home in Miami, Florida.
- John Smith gets approved for a FHA insured mortgage loan at a mortgage rate of 3.25%
- John Smith needs to come up with a 3.5% down payment or $7,000
- The down payment can be gifted to John Smith by a family member
- Say John Smith does not have any additional funds besides the $7,000
- John Smith can get a sellers concession of up to $12,000 from the seller of the subject property
- Normally a sellers concession cannot exceed 6% of the purchase price
- Say the closing costs for John Smith’s new home is $6,000
- The seller can contribute the $6,000 as a sellers concessions towards John Smith’s closing costs
- In the event if the seller offers a $12,000 sellers concession to John Smith and John Smith’s closing costs are only $6,000, who gets the difference of the $6,000 left over on the sellers concession?
- The balance of the sellers concession goes back to the seller
- Overages in sellers concessions can go to buying down the mortgage interest rates with point
- John Smith cannot pocket the left over sellers concession and he cannot use it towards moving costs
Home buyers who need more information on this topic or any other lending questions, please contact us at Gustan Cho Associates at Loan Cabin Inc. at 262-716-8151 or text us for faster response. Or email us at firstname.lastname@example.org.
This article was updated on November 20th, 2018