Sellers Concessions Guidelines On Mortgages

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Seller Concessions Guidelines On Mortgages By Sellers

This Article On Seller Concessions Guidelines On Mortgages By Sellers Was PUBLISHED On September 29th, 2019

Seller Concessions Guidelines
Gustan Cho Associates

Seller concessions, sometimes called seller credits can be a confusing mortgage topic.

  • In this article, we will detail how to utilize seller concessions
  • We will explain the maximum seller concessions allowed per loan product and your minimum investment requirement
  • Seller concessions are becoming more common in the mortgage market
  • This is due to the increase in home values across the country
  • What is a seller concession?
  • Seller concessions simply mean seller paid closing cost
  • The seller can contribute a dollar amount or a percentage towards your closing costs

In this article, we will cover and discuss Seller Concessions Guidelines On Mortgages.

Seller Concessions Guidelines On Mortgages On The Amount Allowed

What are Seller Concessions Guidelines On Mortgages On The Amount Allowed

The amount of seller concessions allows varies with each loan product. If you get more credit than the maximum allowed, your loan cannot fund. It is important to stay within these threshold numbers, even after any renegotiations. We will dive into that topic soon.

FHA Loans:

  • 6% of the purchase price

Conventional (primary residence) 

  • 3% of the purchase price for any LTV of 90% or higher
  • 6% of the purchase price for any LTV of 75.01% to 90%
  • 9% of the purchase price for any LTV of 75% or less

VA Loans

  • 4% of the purchase price

USDA Mortgage

  • 6% of the purchase price

NON-QM Loans

  • 6% of the purchase price 

Conventional (investment property)

  • 2% of the purchase price

NON-QM (investment property)

  • 2% of the purchase price

Can Seller Credit Be Negotiated

Can Seller Concessions Be Negotiated

When do you negotiate seller concessions?

  • There are two main times in seller credits are negotiated
  • Upfront when you submit your offer to the seller and once again after the home inspection
  • Asking for seller credit at the time you place your offer is a very common practice
  • Home prices are on the rise once again and more and more funds are needed to purchase a home
  • The rise in seller credit is a trend we have seen throughout the mortgage industry

The next main time seller concessions are negotiated is after you receive your home inspection report.

Importance Of Home Inspection

What is Importance Of Home Inspection

A home inspection is different than the home appraisal.

  • We do not require an inspection, but we highly recommend completing one
  • You are buying a long-term asset
  • Most homes cost hundreds of thousands of dollars
  • A couple of hundred dollars upfront to have the home inspected is a great idea for such a large investment

Please see our HOME INSPECTION BLOG for more details.

Seller Credit For Repairs And Deferred Maintenance

Seller Credit For Repairs And Deferred Maintenance

Once you get the home inspected and you receive the report, you may notice a few items that need to be fixed.

  • Any major items such as holes in the wall or missing windows or railings will need to be completed before the lender may close that mortgage
  • However, for smaller items, such as dated carpet, older appliances, or a faulty window or two can be the go she ate it into seller concessions
  • Let’s say the carpet needs to be replaced throughout the house
  • You anticipate this to cost about $1,000
  • You at this point can negotiate with the seller and your attorneys for an additional $1,000 seller credit

This will come off the final dollar amount you need to bring to closing, freeing up money for you to replace the carpet after closing.

Caps On Credit By The Home Seller

What are Caps On Sellers Concessions

As stated above, you must stay under the maximum seller credit thresholds for your loan products.

  • The amount of seller concessions you negotiate upfront, combined with the seller concessions ask for after the home inspection, must be below the allowable threshold
  • Seller concessions are lumped into one cumulative total which must be under the threshold

For more information on these thresholds please call Mike Gracz at 630-659-7644 or send an email to mgracz@gustancho.com.  

Who Quarterbacks Concessions Between Buyers And Sellers?

Who Quarterbacks Seller Concessions Between Buyers And Sellers?

Who will coordinate the negotiations surrounding seller concessions?

  • Seller concessions asked for at the time of submitting your offer are negotiated by your realtor
  • If you are not using a realtor, you will add these concessions to the contract you submit
  • Seller concessions asked for after the home inspection is usually negotiated by your real estate attorney
  • If you are not using a real estate attorney, your realtor should be able to negotiate these with the seller’s agent
  • If you are not using a real estate agent, you are on your own for the negotiations

Please check out our article on the benefits of USING A REALTOR for your transaction. 

Seller Credit Guidelines On Mortgages For Overage Credits

What are Seller Concessions Guidelines On Mortgages For Overage Credits

Can you ask for too much credit?

  • You may not exceed the maximum percentage threshold of seller credits for your specific loan product
  • Assuming you are under that threshold, any remaining seller credit will be applied to buying your interest rate down
  • You must be a minimum investment requirement per your loan guidelines
  • For example, with an FHA mortgage, you must contribute a minimum of 3.5% towards the closing of your verified funds
  • In states such as Illinois, or property taxes are paid in arrears, you may not need to bring the full 3.5%
  • The rule of minimum investment requirements is 3.5% minus the tax prorations
  • Please call us directly on 630-659-7644 to discuss this topic further

Many borrowers get confused with minimum investment requirements.

Lenders Steering Borrowers To Preferred Lenders

Lenders Steering Borrowers To Preferred Lenders

Builder’s lenders and incentives to use their lender.

  • If you are building a home, I am sure you have talked to the builder’s lender
  • The majority of builders have a working relationship with a mortgage company
  • Typically, this lender will give you incentives to use them
  • This is because the builder has a financial interest in that lender
  • Many times, they will offer you a large seller credit utilize their lender
  • Most of the time they will tell you the incentives will go away if you do not use their lender
  • We have seen numerous cases where that is just a smokescreen
  • Of course, they want you to use their lender, but they also need to sell their homes
  • We have closed numerous new construction mortgages where builders still gave the incentives and used Gustan Cho Associates as their lender
  • If these incentives are over 3% or 6% (depending on the loan program) of the purchase price, they will lower the purchase price
  • Main take away on new construction incentives is, do not let the builder bully you into utilizing their lender
  • Most builder’s lenders have strict LENDER OVERLAYS
  • This is why many families cannot qualify with them

Don’t be afraid to demand the incentives and work with Gustan Cho Associates as your lender!

Qualifying For A Home Loans With A Direct Lender With No Overlays

How Qualifying For A Home Loans With A Direct Lender With No Overlays

In today’s rapidly evolving mortgage market seller concessions are incredibly popular. The Team at Gustan Cho Associates are experts in maximizing your seller credits. In fact, many of our borrowers rely on seller credits to close on their mortgage transaction. Let’s face it saving for the down payment is hard enough and we could all use a little help on the closing cost. If you have any mortgage questions, please reach out to the Gustan Cho Associates at Lone cabin. We are available 7 days a week and in the evenings. 75% of our clients have been denied for a mortgage and we will work with you to qualify as soon as possible! Many times, it is a lender overlay that gets in the way. we are experts in manually underwriting and are ready to help you purchase your next home. Please call Mike Gracz at 630-659-7644 to schedule a one-on-one mortgage consultation today.

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