Key Takeaways
- A seller concession is money the seller agrees to credit toward your closing costs or a rate buydown.
- Concessions reduce the cash you need at closing, but they do not put money directly in your pocket.
- Each loan type caps how much a seller can contribute, based on loan and occupancy type.
- Concessions work best in a balanced or buyer market where sellers are motivated to close.
A seller concession is when the seller agrees to pay part of your closing costs, which lowers the cash you bring to the table. Used well, concessions can also fund a rate buydown that shrinks your monthly payment. Here is how they work and what the limits are.
What are seller concessions?
Seller concessions, sometimes called seller-paid costs or a seller credit, are an agreed amount the seller applies toward your closing costs, prepaid taxes and insurance, or a mortgage rate buydown. Rather than lowering the sale price, the seller helps cover the expenses that would otherwise come out of your pocket at closing.
How much can a seller contribute?
Limits depend on the loan program and how much you put down. On conventional loans the cap ranges from 3 percent of the price with low down payments up to 9 percent with larger ones, and 2 percent for investment properties. FHA allows up to 6 percent, VA allows up to 4 percent for certain costs, and USDA does not set a fixed percentage cap. Concessions can never exceed your actual closing costs.
Should you take a lower price or a concession?
A price cut lowers your loan balance and long-term interest, while a concession reduces the cash you need today. If you are tight on closing funds, a concession helps you get to the table. If you have cash and want the lowest lifetime cost, a price reduction may serve you better. Sometimes using a concession to buy down the rate delivers the best monthly savings.
How do you ask for seller concessions?
Your agent requests concessions as part of the written offer, either as a dollar amount or a percentage of the price. They are most achievable when the home has been on the market a while, when the inspection reveals needed repairs, or in a market where sellers compete for buyers. In a strong seller market, expect more resistance.
Frequently Asked Questions
Do seller concessions reduce the purchase price?
No. The sale price stays the same and the seller credits money toward your costs. Because the price is unchanged, concessions do not by themselves affect the appraisal, though the home still must appraise at the contract price.
Can I get cash back from a seller concession?
No. Concessions can only offset legitimate closing costs, prepaids, or a rate buydown. Any excess above your actual costs is lost, so you should not request more than you can use.
Can concessions be used to buy down my rate?
Yes. Applying a concession to discount points or a temporary buydown can lower your interest rate and monthly payment, which is often a smarter use than simply covering flat fees.
Related Reading
Working through this in Colorado? I’m David Silva, a mortgage loan officer based in Westminster, CO (NMLS 1352284), licensed in Colorado, California, Georgia and Texas. Take a look at every loan program I offer or first-time buyer help — or send me your scenario and I’ll tell you straight whether it works.
Leave a Reply