FHA Seller Concessions
FHA guidelines allow for FHA seller concessions of up to 6% of the sales price of the home. The seller concessions can be used towards all closing costs, lender fees, points, appraisals and any other expenses except for the down payment.
What is a Seller Concession?
A seller concession is a credit from the seller at closing that is typically used to offset closing costs or other fees or costs related to the real estate sales transaction. Seller concessions are often used as a negotiation point between the buyer and the seller.
How Do Seller Concessions Work?
In a perfect world, buyers would let their realtor know they may need assistance with closing costs before making an offer on a home.
As part of the price negotiation of the home, buyers will ask for, or sellers will offer closing costs concessions which will result in a seller credit at closing for the negotiated amount.
FHA seller concessions are capped at 6% of the sales price or 6% of the appraised value, whichever is less. Sellers will typically agree to provide a seller concession in exchange for a sales price at or close to their asking price.
At closing, the seller will be short paid by the amount of the seller concession and the fees involved in the concession will be paid out to the lender or third parties depending upon the nature of the costs.
What Costs Can FHA Seller Concessions Pay for?
FHA Seller concessions are typically used as a credit to pay for some or all of the following:
- Pre-paid property taxes
- Pre-paid interest
- Attorney fees
- Recording fees
- Lender origination fees
- Lender discount points
- Title search and insurance costs
- FHA inspection
- FHA upfront mortgage insurance
These are just some examples of the costs that can be covered by the seller concessions. Read our article on FHA closing costs to get a full understanding on what the potential costs are.
Who are FHA Seller Concessions for?
FHA seller concessions are for buyers who may not have enough cash to cover the down payment, closing costs, and reserves. It is also useful to home buyers who prefer to hold onto some of their funds to make home improvements after closing.
Seller concessions are also for sellers who are trying to make their home financially attractive for buyers in an attempt to sell the home quickly or closer to their asking price.
Benefits of FHA Seller Concessions
There are a few benefits to the buyer when asking for a seller concession:
- Buyers can save some money at closing or use those funds for other things after closing
- Buyers can use the funds for a larger down payment on a more expensive home
Disadvantages of FHA Seller Concessions
As a buyer, there may be a few disadvantages of receiving a seller concession at closing.
- You may have to pay full asking price or more as part of the negotiation with the seller
- Sellers may opt to accept offers from borrowers who are not asking for a concession
FHA Seller Concessions for Repairs
A seller can allow for concessions for future repairs. However, those repair issues must pass FHA inspection before the loan closes. The FHA has strict guidelines on the condition of the home and they will not permit the sale of the home until all repairs identified via the FHA inspection have been made.
As a result, you may have FHA seller concessions for repairs, but they likely need to be minor repairs that are not required to be fixed prior to close per the FHA guidelines. In this article, we will explain all about the FHA inspection and what type of repairs must be completed prior to closing.
Can the Lender Pay for the Closing Costs?
Lenders may be allowed to cover your closing costs. However, it will likely be in exchange for a higher interest rate. It is important to do the math and determine what the difference in payment will be when choosing this option. Ask your FHA lender to detail all of your options.
Can the FHA Closing Costs be Rolled into the Loan?
FHA closing costs can be rolled into the loan. This means you will be financing the closing costs for the life of the loan. The better option is to have the seller concession to cover your closing costs. You can read our article about rolling FHA closing costs into the loan.
Can FHA Seller Concessions be Used with an FHA 203k Loan?
Seller concessions can also be used for the FHA 203k loan as well.
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