What is a seller concession? And how does that help when purchasing a home.
Depending on the market, the buyer sometimes has the ability to negotiate with the seller to entertain a seller’s concession. This helps cover some of their closing costs or even cover some of their prepaid items, like taxes and the funding of their tax and insurance account. So the seller giving a concession typically reduces their net proceeds from the sale. For the buyer, however, these concessions are basically just not coming out of pocket today. You’re going to be paying it over the term of your payments to the mortgage month over month over the 30-year mortgage.
So here’s a cheat sheet that we found to kind of give you some context about how much of a concession can you ask for. And that’s really going to be driven by the type of loan that you get.
How the concessions work
So if you look at this chart, it’s going to show conventional loans and the larger down payment will mean the larger concession that you could actually ask for. So if you’re putting 10% down, you essentially can get a 3% concession. If you’re putting somewhere between 10% and 25% down, you can get up to 6%. And then finally for a conventional loan, if you put 25% down or more, you can get up to 9% in concessions.
If you are buying an investment property, however with a conventional loan, if you’re doing a 15% down you’re only going to be able to get a 2% concession. The bank’s going to want “more skin in the game”.
If you’re applying for an FHA loan, you can get up to 6% seller concession. You’re really just putting in a three-and-a-half percent down payment.
If you’re a veteran, you’re getting a VA loan, you can get up to two discount points paid down. It will just bring down that interest rate and you can also get a 4% seller concession. And then lastly if you’re obtaining a USDA loan you can get up to a 6% seller concession.
So here is lots to digest, a lot of information, the buyers use these concessions again to cover their closing costs, and cover prepaid items. It’s going to reduce the amount of cash you need to bring to the closing table. If you have any questions about any of this certainly give us a call or text.