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High Rise Lending Market Update – What Are Seller Concessions?

What are seller concessions?

A seller concession is an arrangement where a home seller agrees to pay some, or all, of a buyer’s closing costs. 

Importantly, getting a seller concession does not mean the seller will hand over cash to pay for your upfront costs.

Rather, it’s an agreement that allows the seller to cover the buyer’s costs using part of the proceeds from the home sale. So the buyer doesn’t have to pay closing costs out of pocket — but the seller doesn’t have to cut them a check, either.

Seller concessions are allowed on all major loan types, including conventional, FHA, VA, and USDA mortgages.

How seller concessions work

Typically, seller concessions happen when the seller is having trouble moving their house. As an incentive for buyers, they’ll agree to kick back part of the purchase price to help the buyer cover closing costs.

A seller concession can also be initiated by a buyer who needs help with their closing costs.

If the seller doesn’t want to lose money on their sale, they might agree to a slightly higher purchase price, and then use those extra funds toward the buyer’s closing costs. This effectively means the buyer is rolling their closing costs into their mortgage instead of paying them at the closing table.

Sometimes, a seller concession will cover all of a buyer’s upfront cost. Other times, it will not.

In no circumstance, however, may the amount of seller concessions exceed the amount of closing costs charged to the buyer.

The buyer cannot use seller concessions to get “cash back” at closing.

Nor can seller concessions be used for the down payment, home repairs, new appliances, or for any other purpose than to pay for closing costs shown on the final loan documents.

What do seller concessions cover?

Seller concessions can only be used for the buyer’s closing costs. The specific items that can be paid by the seller vary by loan type. But generally, seller concessions are allowed to cover:

  • Loan origination fees
  • Home inspection and appraisal fees
  • Mortgage points (a.k.a. “discount points”)
  • Upfront mortgage insurance for FHA loans
  • Upfront funding fees for VA and USDA loans
  • Closing attorney fees
  • Prepaid property taxes
  • Title insurance
  • Recording fees

How much are closing costs?

Closing costs are typically 2-5% of your loan amount, with a smaller percentage for larger loans.

Maximum seller concessions by loan type

The amount a seller can contribute to your closing costs via a seller concession is limited. The limit varies by loan type.

Max seller concessions for the most common mortgage types are as follows:

Loan TypeDown PaymentMax Seller Concession
Up to 10%3%
Conventional10% to 25%6%
More than 25%9%
Investment PropertyAny

Other rules to keep in mind when using a seller concession include:

  • The seller concession may NOT exceed the buyer’s closing costs. There is no cash-back allowed with seller concessions
  • The adjusted sales price (including the concession) needs to be supported by the home appraisal. If the appraisal is too low, the seller concession may be rejected
  • For VA loans, the seller concession may be allowed to exceed the 4% limit, since certain closing costs are not covered by that rule
  • For USDA loans, the 6% seller concession limit is calculated using the buyer’s loan amount rather than the sale price or appraised value

Seller contributions are allowed on jumbo loans, too. But limitations vary by bank.

For more information on your mortgage options and general lending questions, contact High Rise Lending Group.

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