What are seller concessions?
Learn how you can reduce your closing costs
Seller concessions are costs a seller agrees to pay during the sale of their home. These concessions often involve the seller paying some of the buyer’s closing costs. Lowering the home’s price to cover repair costs is also a seller concession. Seller concessions are more common in buyer’s markets or when mortgage rates are high.
What do seller concessions typically include?
You can negotiate a variety of concessions with the seller when buying a home like paying for closing costs, home repairs, and other fees. Here are some common expenses that buyers request as seller concessions:
- Appraisal fees: The cost of a professional determining the market value of the home.
- Attorney fees: If your state requires an attorney at closing, this fee covers the cost of an attorney reviewing the documentation and more.
- Home inspection fees: The cost of a professional assessing the condition of the home.
- Home repairs: If the home inspection determines there are problems, you can negotiate with the seller to cover the cost of fixing those problems.
- Loan origination fees: The cost of processing your loan application.
- Mortgage discount points: The fees you might pay in exchange for a reduced interest rate.
- Mortgage insurance: Some loans require a payment on your mortgage insurance at closing, like the upfront mortgage insurance premium (UFMIP) for FHA loans or the funding fee for VA loans.
- Processing fees: This covers the cost of pulling your credit report and title search, recording the purchase in public record with your local government, and more.
- Property taxes: The tax amount for the remainder of the year.
- Title insurance: This protects you and the lender from liens associated with the home if someone else claims to be the owner.
Another popular type of concession is the mortgage buydown. With this concession, the seller pays to temporarily lower the interest rate on your mortgage, which helps make your payments more affordable during the first few years of the loan. Learn more about mortgage buydowns.
Are there limits on seller concessions?
Yes, there are limits on seller concessions. Seller concession limits are different for different loan types.
- Conventional loans: Limits on seller concessions are dependent on the size of the down payment for conventional loans, but max out at 9% of the purchase price of the home.
- FHA loans: The Federal Housing Administration caps seller concessions for FHA loans at 6% of the purchase price of the home.
- VA loans: The Department of Veterans Affairs (VA) limits seller concessions to 4% of the loan amount.
- USDA loans: The U.S. Department of Agriculture (USDA) limits seller concessions to 6% of the loan amount.
What are the pros of seller concessions?
Seller concessions can lower the cost of buying a home. They are helpful when you do not have enough cash to pay costs due at closing or when adding closing costs to your mortgage increases the amount above what the lender will approve. You can also ask for seller concessions in buyers markets or when interest rates are high because these are times when sellers may need to offer you more incentives to close the sale.
What are the cons of seller concessions?
Asking for concessions can make your offer less attractive to the seller. When mortgage rates are low or when there is a seller’s market in the community where you want to buy, homeowners are often less likely to make concessions. Learn more about how to make a successful offer on a house.