Understanding the Limits on Seller Concessions: A Guide for Homebuyers
Welcome to another exciting blog post brought to you by Stacy Burgin, a real estate expert from Terra Point Realty. Secondly, today we dive into the world of seller concessions and shed light on the limits set by lenders. Furthermore, if you’re a prospective homebuyer, this information is crucial for navigating the home buying process successfully. So, let’s get started!
What are Seller Concessions?
Seller concessions, also known as seller contributions or seller paid costs, refer to the financial assistance provided by sellers to buyers during a real estate transaction. Additionally, these concessions are typically offered to cover the buyer’s closing costs, prepaid expenses, or even to fund repairs or improvements on the property.
Why Do Lenders Set Limits on Seller Concessions?
Lenders impose limits on seller concessions to maintain a fair and balanced real estate market. These limits help prevent inflated home prices and ensure that buyers have a vested interest in the property they are purchasing. By setting boundaries, lenders aim to protect both parties involved in the transaction.
How Do Lenders Determine the Limits?
The limits on seller concessions vary depending on the loan type and the loan-to-value ratio (LTV) of the mortgage. Conventional loans typically have stricter limits compared to government-backed loans such as FHA, VA, or USDA loans. Lenders often set these limits as a percentage of the home’s sale price or the loan amount.
Understanding the Different Loan Types:
Conventional Loans:
Generally, conventional loans allow seller concessions of up to 3% to 6% of the home’s sale price, depending on the down payment amount made by the buyer. Higher down payments may result in more flexibility in negotiating seller concessions.
Limits Vary Based On the Down Payment Amount:
3% of purchase price if down payment is less than 10%
6% if down payment is 10-25%
9% if down payment is more than 25%
For Investment Properties:
the limit is 2% regardless of down payment
FHA Loans:
The Federal Housing Administration (FHA) loan program permits seller concessions of up to 6% of the home’s sale price. However, keep in mind that the concessions cannot exceed the actual closing costs incurred by the buyer.
Additionally, seller concessions are capped at 6% of the sales price or appraised value, whichever is less.
VA Loans:
The Department of Veterans Affairs (VA) loan program allows for seller concessions of up to 4% of the home’s sale price. These concessions can cover the buyer’s closing costs, prepaid expenses, and even a portion of the buyer’s debt.
The general limit is 4% of the purchase price
However, some “reasonable and customary” closing costs don’t count toward this limit
Sellers must pay real estate commission, brokerage fees, and termite inspection
USDA Loans:
The United States Department of Agriculture (USDA) loan program allows seller concessions of up to 6% of the home’s sale price. These concessions can go towards covering the buyer’s closing costs, prepaid expenses, and other eligible expenses.
Seller concessions limits are 6% of the loan amount
General Rules:
Seller concessions cannot exceed the actual closing costs
The adjusted sales price (including concessions) must be supported by the home appraisal
Concessions cannot be used for down payments
Purpose of Limits:
To prevent artificially inflating home prices and ensure fair market values
Conclusion
In conclusion, as a homebuyer, understanding the limits on seller concessions is vital when negotiating a real estate deal. In addition, remember that these limits can vary depending on the loan type and the specific lender’s guidelines. Therefore, it’s always a recommendation to consult with a knowledgeable real estate agent or mortgage professional who can guide you through the intricacies of seller concessions and help you make informed decisions.
Lastly, stay tuned for more insightful blog posts from Stacy Burgin at Terra Point Realty, your go-to resource for all things real estate. Happy house hunting!
Contact Information
To schedule a coffee date or learn more about understanding the limits on seller concessions, contact Terra Point Realty at 713-766-1697. Their friendly and knowledgeable team is ready to assist you with understanding the limits on seller concessions. Don’t miss out on the opportunity to live in your dream house – schedule a coffee date today and start your journey towards understanding the limits on seller concessions.
