What are seller concessions?
Seller concessions are costs the seller has agreed to pay for the buyer. These are also known as seller credits or seller contributions. Generally these are contributions toward closing costs. Seller can also give a Seller Concessions to the buyer for repairs.
Buyer’s closing costs can range from 2 to 5 percent of the home purchase price and some sellers are willing to contribute towards the buyer’s closing costs. Why? Well that depends on the market. In a buyer’s market the seller is looking for a faster sale. In a seller’s market the buyer is willing to pay over list price to cover those costs
There are limits as to the percentage of the sales price the seller can contribute. Each loan type has slightly different rules when it comes to seller contributions.
Maximum seller-paid costs for the different types of loans:
- Fannie Mae and Freddie Mac which are conventional loans closing costs are capped and will depend on the buyer’s purchasing power i.e. percentage of their down payment. The more down the more a seller can contribute.
- 10% down seller concession is 3%
- Over 10% up to 25% seller concession can be up to 6%
- 25% or more down, seller can contribute up to 9%
- FHA Loan
The seller can contribute up to 6% of the sales price or toward closing costs, prepaid expenses, discount points, and other financing concessions.
For VA loans seller can contribute up to 4%
A seller con only contribute what the actual closing costs are, regardless of the percent they agreed to in the contract. The contributions can only be for the buyer's prepaid accounts and closing costs. Nothing can be contributed to the buyer's down payment. And if the closing costs are less then the agreed upon percentage, the left over money does not go to the buyer.