What are the limits of seller concessions? As a buyer, the answer depends on your loan program.
What are the limits of seller concessions?
My homebuyer clients often ask me whether the seller can pay for some or all of their closing costs, and the reality is, different loan programs have different limits for what a seller can and can’t do.
FHA and USDA programs cap the maximum contribution at 6% of the sales price. Very rarely do the closing costs amount to 6%, but they allow it if those closing costs are there to be paid. VA programs, on the other hand, allow 4% plus closing costs. This is a broad generalization of what can and can’t be done, but if the amounts are large enough, the buyer can pay off their funding fee, non-mortgage debt, etc.
Conventional loan limits are capped based on your down payment. If you put down 10% or less, the maximum is 3% of the sales price. If you put down anywhere from 10% to 25%, the limit is 6%. If you put down more than 25%, the limit is 9%.
If you’re thinking of making an offer on a property and using seller contributions as part of your strategy, let your Realtor know up front so they can include that in their negotiating strategy. If you’d like to talk more about how these limits affect your home buying prospects, give me a call and I’d be happy to run the numbers for you.
For now, though, let’s say you make an offer of $200,000, wherein your actual price is $205,000 but you also ask for $5,000 worth of seller contributions, the seller would usually be OK with this because they net the same amount. As long as the property appraises, that’s a good way to keep a large chunk of money in your pocket. Technically the mortgage payment is slightly higher because you’re borrowing more money, but it’s usually a good tradeoff.
If you have any questions about this topic, don’t hesitate to reach out to me. I look forward to speaking with you.