There are many different costs and fees involved in buying a home. If a buyer is not careful, they can
really start to mount up. Therefore, smart prospective buyers will often ask for concessions from the
person selling the home in order to keep down expenses.
Closing costs in particular can really become overwhelming. They are rarely budgeted for when eager
buyers scrape together their down payment. Rather than let a good buyer walk away from the table at
the last minute, sellers might be willing to offer the concession of paying some or all of the most common
fees involved in finalizing the sale.
Various Concessions
There is a large amount of paperwork involved in selling a home. In some cases, it might be cheaper for
the seller to do it than the buyer, and this will also generate good will.
Seller concessions might also include little perks around the house that won’t cost too much, but can
move the sale along for a great price. Replacing the old appliances, or taking up the gross old carpeting
and putting in wood flooring would be good examples.
Concession Restrictions
Concessions can sweeten the deal, but there are limits as to the number of perks allowed in relation to
the type of mortgage the buyer is taking out. A conventional mortgage allows from 2% to 9% in seller
concessions. A VA mortgage permits up to 4%. FHA and USDA loans allow up to 6% percent in seller
concessions.
These concessions mean the expenses are all being rolled into the mortgage so the buyer does not
need to pay in cash. Certain concession will also add to the value of the house, making the final
appraisal and sale a lot easier.
Settlement Costs
For cash-poor buyers who have underestimated how much they needed to close the deal, the seller can
pay any of the settlement costs. They are not allowed to contribute to your down payment, and they will
also not be allowed to pay for your mortgage application fees or credit check fees.
Adding It All Up
When you have moved far enough forward in the process to get pre-approval on a mortgage, you will
have a good idea of who the lender is, how much you can borrow, and what the closing costs will be.
Some realtors will ask for seller concessions in round figures, such as 6% of the closing cost and other
fees.
However, it is important to note that if you are living in a low tax area and buying only a modest home,
that would actually cause you to lose money in the long term. Why take 6% and therefore give up 6% of
the mortgage to the seller when the fees are really only 3%? It’s a case of buyer beware, knowing what
things actually cost, and itemizing them rather than making blanket concession deals.
The Bottom Line
Seller concessions help grease the wheels of a house sale, but they are certainly not a gift. Be clear
about all the title deeds required, fees and documents, and make the deal based on what your closing
costs actually are.