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Seller Concessions: Reducing Your Closing Costs

Couple calculating financial budget for home purchaseWhat Are Seller Concessions?

Seller concessions are a dollar amount or a percentage of the purchase price that a seller agrees to contribute to the buyer in order to help cover the buyer’s closing costs. This is helpful for home buyers who may not have the funds to cover closing costs, or who may want to avoid having extra money tied up in a mortgage.

How Seller Concessions Work

An example may better clarify the concept of seller concessions. Imagine that a buyer is purchasing a home for $100,000 and is eligible to receive seller concessions of 6% of the purchasing price. This raises the sale price of the house to $106,000.

If the offer is accepted, the seller will still receive $100,000 for the property (known as “net to seller”) and the $6,000 extra in the loan amount will be used to help the buyer cover closing costs. In order to be able to use seller concessions, the home must appraise for the new sale price of $106,000.

Who Do Seller Concessions Help?

Seller concessions can benefit both the home buyer and the seller. They can help the buyer by allowing them to pay less at the closing, which can help to make a home purchase more affordable and feasible.

While it seems like seller concessions are mostly beneficial for home buyers, they’re also advantageous for sellers in certain circumstances as well. Agreeing to concessions can help to get a home off the market faster, which can speed up the sale process.

What Can Seller Concessions Cover?

Seller concessions can cover a variety of things that are often wrapped up in closing costs, including taxes, title insurance, and fees.

What are The Advantages & Disadvantages of Seller Concessions?

For buyers, the benefits (as mentioned above) include paying less at closing time. Cutting up-front costs can make a home purchase more affordable. However, it is important to note that asking for concessions may make you a less appealing buyer, especially if you’re in a situation where you’re competing with other buyers for a home.

For sellers, the benefits of seller concessions include expediting the home sale process, as allowing for seller concessions can make your home more accessible to buyers with varying budgets, which can help to move your home off of the market more quickly. In terms of disadvantages, seller concessions can be a bit more complex to navigate for sellers when compared to a sale where the buyers are covering the closing costs themselves.

How Do Seller Concessions Vary Based on Loan Type?

Seller concessions amounts vary based on mortgage type. Maple Tree Funding and our wide variety of lenders offer numerous loan programs with varied seller concessions percentages.

  • Seller Concessions for an FHA Mortgage – Up to 6% of the selling price can be covered through the use of concessions
  • Seller Concessions for a USDA Mortgage – Up to 6% of the buyers loan amount can be covered through the use of concessions
  • Seller Concessions for a VA Mortgage – Up to 4% of the financing can be covered through the use of concessions
  • Seller Concessions for a Conventional Mortgage – For conventional mortgages, it’s important to note that the amount of seller concessions you’re allowed will vary based on the amount your are putting forward as a down payment.
    • Down payments of 10% or less: the buyer can use up to 3% seller concessions
    • Down payments of between 10% and 25%: the buyer can use up to 6% seller concessions
    • Down payments of more than 25%: the buyer can use 9% seller concessions
    • Note: Second homes follow the same seller concessions as primary residences.
  • Seller Concessions for an Investment Property – Up to 2% seller concessions, regardless of down payment amount

Need Help Navigating the Complexities of Seller Concessions? Let Maple Tree Funding Help!

The team of experienced mortgage professionals at Maple Tree Funding can help you every step of the way when it comes to buying a home. Our knowledgable staff can help you fully understand seller concessions and guide you through all the steps of the mortgage process.

Looking for more information about seller concessions and how they work? Contact us today! Give us a call at 518-782-1202 or fill out our online form to have your questions answered!

Editor’s note: This content was originally published in May 2012, but has been updated as of January 2024.

Posted in Mortgage Basics & Information on Wednesday, March 10, 2021 by Maple Tree Funding