What Are Seller Concessions in a Home Purchase?

When buying a home, you may have heard the term “seller concessions” but might not fully understand what it entails or how it can benefit you. In essence, seller concessions are a way to reduce your out-of-pocket expenses when purchasing a home.

What Are Seller Concessions?

Seller concessions, or seller credits, are costs that the seller agrees to cover on behalf of the buyer. These concessions can either be a specific dollar amount or a percentage of the purchase price. They are designed to help buyers with various expenses related to closing and financing a home.

These concessions are not mandatory, and sellers are under no obligation to offer them. When they do, the details must be included in the final Closing Disclosure.

Seller concessions can help cover various expenses, including loan origination fees, points, inspection and repair costs, and even prepaid real estate taxes. However, they typically do not cover all the costs associated with buying a home.

Seller Concession Limits

It’s important to know that there are limits to how much you can receive in seller concessions. These limits often depend on the amount of your down payment and the type of mortgage you’re using.

For example:

• Conventional Loans: Seller concessions are typically capped between 3-9% of the purchase price.
• FHA Loans: The cap is usually around 6%.

Generally, the more you put down, the higher the concession cap. These limits apply primarily to primary residences or second homes. While seller concessions can sometimes be used for investment properties, there are usually stricter limits, and they must not exceed your total closing costs.

Pros and Cons of Seller Concessions

Pros:

• Reduced Out-of-Pocket Costs: Seller concessions can help cover fees and charges, allowing you to retain more of your funds for your down payment.
• Financial Flexibility: If your financing costs exceed your initial estimates, concessions can help bridge the gap and keep your purchase on track.

Cons:

• Not Always Available: In competitive markets, sellers may be less inclined to offer concessions and may prefer to move on to other offers.
• Potential Trade-Offs: Sometimes negotiating a lower purchase price might be more beneficial than asking for concessions.

Seller concessions are particularly useful for first-time home buyers or those with limited savings. However, it’s important to consult with your realtor and mortgage advisor to determine if they are a viable option for your situation. Additionally, seek advice from a CPA if needed to ensure you fully understand the implications.

In summary, seller concessions can be a valuable tool in managing your home purchase expenses, but it’s essential to understand their limitations and consider all your options.