Sellers concessions are closing cost credits given by the home seller to the home buyer 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 such as title charges, state and county transfer stamps and fees, recording fees, attorneys costs, inspection fees, upfront points, appraisal fees, homeowners insurance, pre-paids, escrows, and 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 lower the mortgage loan borrower’s mortgage rates with buying points.
Maximum Amount Of Sellers Concessions Allowed
Depending on which mortgage loan program a mortgage loan applicant chooses, each mortgage loan program has their own maximum amount of sellers concessions allowed. For FHA insured mortgage loans, FHA allows a maximum amount of 6% sellers concessions for a home seller to give a home buyer. For VA loans, the maximum amount of sellers concession a home seller can give a home buyer is 4%/ USDA loans allow a maximum sellers concession of 6%. With conventional loans, if a home buyer is purchasing an owner occupant home, a maximum of 3% sellers concession is allowed. If a conventional mortgage loan 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 a conventional mortgage loan borrower 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 buyer.
What Happens If There Is Overage In Sellers Concessions
Overages in sellers concessions will need to go back to the home seller and 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 the home buyer. 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
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 mortgage loan program the home 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 and 5% down payment for traditional conventional loan programs, second home conventional loans require 10% down payment, and investment homes require 20% down payment. Jumbo mortgages require 20% down payment and condotel unit mortgage loans require 25% down payment.
Closing Costs On Mortgage Loans
All home purchase transactions have closing costs. Closing costs are costs associated with the closing of a home purchase. Examples of closing costs include title charges, transfer stamps, inspection costs, appraisal fees, upfront points, homeowners insurance, pre-paid items, and 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 and most home 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, the mortgage loan borrower can request a lenders credit towards a home buyers closing costs in lieu for a higher mortgage rate.