In the last couple of years I have seen more seller concessions for buyers closing cost.
Seller Concessions
An often necessary & useful tool
•What is a seller concession? A seller concession is an agreement between buyer & seller for the seller to pay some or all of the buyers closing costs, up to the percentage allowed by the lender.
•Who benefits from a concession? Both Buyer & Seller can benefit! A buyer may ask for a concession in order to afford both down payment & closing costs, or in order to reserve some money for savings or repairs to the home. A seller may wish to offer a concession in order to make their listing stand out. As a listing agent, you can make the sellers aware of this tool, & the benefits of doing "something different" to help market the home. Often, reducing the price does not have the effect a seller offering to pay some closing costs will. Seller concessions are more effective on lower price-point homes, which may attract 1st time buyers with little savings.
•How much can a seller pay? Seller concessions are limited by the type of loan program & sometimes the lender themselves. It is best to consult with the mortgage representative to be sure, but the following guidelines generally apply:
•FHA- up to 6% of the sales price
•VA- up to 6% of the sales price
•Conventional- (Fannie / Freddie Guidelines)
LTV >90% Seller concession = up to 3% of selling price
LTV >75.01 <89.99 Seller concession = up to 6% of selling price
LTV <75.00 Seller concession = up to 9% of selling price
•How is a seller concession written in a purchase contract? When writing a contract that includes a seller concession, most lenders want to see the following language clearly written on the contract: "Seller agrees to pay $X,XXX towards buyers closing costs, discounts & / or pre-paids." Typically, this can be written on the last page of the standard sales contract (additional contract provisions, if any)
Links to other topics:
Applying for a mortgage? Here's what NOT to do.
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I have educated many borrowers on the advantages of using seller concessions.
However, lately I have seen short-sale lenders reject offers with seller concessions.