The 411 On Seller Concessions
The home market may be cooling off a bit, but there’s no doubt it’s still very much a seller’s market. Homes are in demand, and there are more buyers than sellers, driving prices up and keeping them there. Rents are climbing just as much, and mortgage interest rates are too. According to the Wall Street Journal, “Existing-home sale prices reached a median of $407,600 in May, while sales slid for the fourth consecutive month. Mortgage rates have nearly doubled since January, helping boost the median mortgage payment for new loans by $513 a month…”
While all of these things may mean a tough housing market for first-time buyers, there are still many tools buyers can use to trim some of their upfront costs. Seller concessions can help ease the financial burden. Here’s how they work.
What Do Seller Concessions Cover?
Seller concessions are where sellers cover part or all of a buyer’s closing costs. While some sellers may not agree to them, other sellers eager to pack up and move may be tempted to give in and seal the deal.
Here are the most common seller concessions:
- Property taxes: Pre-paid property taxes through the year-end at closing
- Title insurance
- VA loan origination fees: These origination fees cover your lender’s charges for processing your loan
- Inspection fees: Inspection fees cover the cost of inspections required for the loan
- Recording fees: Recording fees cover the expense of documenting your home’s purchase with your local government
- VA appraisal fee: This covers the cost of getting a licensed VA appraisal of the home to determine the market value
Once you apply for your loan, your lender will give you a document outlining your estimated closing costs. You can then work with your agent to decide which ones to ask the seller to pay for.
Pros & Cons Of Seller Concessions
Seller concessions can help both the buyer and the seller. For the seller, offering concessions can make their home more attractive to potential buyers and get it sold quickly.
Seller concessions also help buyers who don’t have the cash on hand to cover all their closing costs. First-time home buyers often underestimate the costs associated with buying a home, so seller concessions are a way to help offset some of those costs and make the home more feasible. However, concessions are not always the best thing to ask; we’ll explain why below.
Pros Of Seller Concessions
- Seller concessions allow you to pay less at closing to make buying a home more affordable
- Agreeing to concessions can be good for the seller in some circumstances; they can help the seller get their home off the market faster
Cons Of Seller Concessions
- Asking for seller concessions might make you a less appealing buyer, especially if other offers do not include concessions
- If a home has multiple bids, the seller will probably disregard offers that include concession requests because it means they get less money
Limits To Seller Concessions
Mortgage rule-makers like Fannie Mae and HUD set seller concessions limits to discourage housing market inflation. Because of these rules, sellers can only contribute a small percentage of their home's value to closing costs.
The limits on seller concessions vary by loan type. The appraised value usually dictates how much a seller can pay in concessions. VA loan rules state that the seller can contribute up to 4% of the appraised value. Seller concessions on VA loans may include payments toward a buyer’s judgments, debts, and VA funding fees. For example, if a home is appraised at $500,000, the seller can contribute no more than $20,000 in concessions.
Types of VA seller concessions may include, but are not limited to:
- Payment of the buyer’s VA funding fee
- Prepayment of the buyer’s property taxes and insurance
- Payment of extra points to provide permanent interest rate buydowns
- Provision of escrowed funds to provide temporary interest rate buydowns
- Payoff of credit balances or judgments on behalf of the buyer
VA Loan Options
Our diverse portfolio of loan products includes VA Home Loans, VA Refinance Loans, VA Construction Loans, and VA Renovation Loans. We are trained on the ins and outs of working with military families and their homeownership needs. Our team of experts will identify which loan is best suited to meet your current needs. Let’s get started on your homeownership journey together here.