Sellers Concessions Mortgage Guidelines On Home Purchase
This Article Is About Sellers Concessions Mortgage Guidelines On Home Purchase
Today’s real estate climate can be hard to understand.
- We are currently in the rising-rate environment while also seeing increases in home values
- This is creating larger down payments needed to purchase a house
- The rising rate environment is also creating more expensive lending practices
- Lately, discount points are involved in the mortgage process with lower credit scores
This was not the case as of a few years ago. In this blog, we will detail the use of seller concessions and Sellers Concessions Mortgage Guidelines with various loan programs.
What Are Seller Concessions?
Sometimes called seller credits, it is the seller’s contribution to help the buyer with closing costs.
- In some cases, this is negotiated up front with the original offer
- Often times seller concessions are added for repairs that come up during the inspection and appraisal process
- In either case, seller concessions are becoming more popular in today’s real estate market
- Many of our clients need seller concessions in order to be able to purchase the home
- They have the down payment saved but need funds for closing costs
These closing costs include money for escrows, title fees, lender origination, and state or county specific fees.
Sellers Concessions Mortgage Guidelines On Maximum Allowed
Are there limits to the number of seller concessions you may receive?
Yes, there are very strict limits on the amount of seller concessions allowed. They vary per loan type, we will detail each loan program below:
- Conventional 3% – 10% down payment – 3% sellers concessions allowed of purchase price
- Conventional 10% – 25% down payment – 6% sellers concessions allowed of purchase price
- Conventional 25% or more down payment – 9% sellers concessions allowed of purchase price
- FHA -3.5% or more down payment – 6% sellers concessions allowed
- VA -4% maximum allowed
- USDA- 6% maximum allowed
- NON-QM- up to 6% (depending on the loan program)
- Investment property
- Conventional Investment Property- ANY down payment – 2% seller concession allowed
- NON-QM Investment Property- 2% of sellers concession allowed
Sellers Concessions Mortgage Guidelines Depends On Loan Program
As you can see each loan program has its own qualifications for maximum contributions by the seller.
- At Gustan Cho Associates, we are seeing an increasing trend in the use of seller concessions
- Now you may notice loan programs such as FHA, where you are allowed 6% seller concessions and only need a 3.5% down payment
- You may be thinking can you use seller concessions as a down payment?
- The answer is no
- We must verify you have acceptable assets for the down payment of your own funds (or gift funds)
- Now if you were to get the full 6% of seller concessions, you may not be bringing the whole 3.5% down payment of your own funds
As stated above we still must verify you have the funds. I do understand this can be confusing, please reach out to Mike Gracz at 630-659-7644 for more information.
Sellers Concessions Mortgage Guidelines On Overages In Credit
Recently we had a situation where a buyer was buying a house or a relocation company.
- The verbiage that they used on their contract was a bit hazy
- They offered seller concessions “UP TO $10,000”
- Our client was worried that they would not use the full $10,000
- Based on the verbiage on contract, that was a valid concern
- The client asked me if they do not use the full $10,000, can they put extra funds into an escrow account to use the all of the money
- The answer to that is also no
- You can no longer pad an escrow account with extra funds
- What do you can do instead is utilize the excess money in the form of discount points, buying down your interest rate
This will make use of the full seller concession given while also lowering your monthly obligation and overall interest paid over the life of the loan. A win-win situation.
Consult With Lender With No Overlays For Expertise Advice
Gustan Cho Associates have helped many clients who do not have all of the funds for closing costs but do you have a verified down payment. We will walk you and your realtor through the seller concession process and make sure you structure your offer accordingly. This is a very common practice and we are experts at it. Many realtors are now pros at structuring deals with seller concessions, but if they need our help we are always available. Please reach out to Mike Gracz on 630-659-7644 for more details. Mike can also be reached on [email protected] 7days a week.