Congratulations! You’ve found your dream home and are ready to make an offer. But before you solidify the deal, let’s talk about seller concessions, also known as ‘Interested Party Contributions’. These can be a game-changer, helping you save money on upfront costs and making homeownership more attainable.

So, what exactly are seller concessions?

In simpler terms, seller concessions are financial contributions a seller agrees to make towards the closing costs or other expenses associated with purchasing a home. These contributions are also called ‘Interested Party Contributions’ and can help ease the burden of upfront costs, making your dream home more affordable.

What kind of costs can seller concessions cover?

• Closing Costs: A significant portion of closing costs can be covered by seller concessions, including origination fees, appraisal fees, title insurance, and recording fees.
• Pre-paid Expenses: This can include your first year of homeowners’ insurance, the funds needed to set up your escrow account for taxes and insurance, and any pre-paid interest due at closing.
• Buydown Points: These points can be used to reduce your mortgage interest rate, lowering your monthly payments. Seller concessions can sometimes be used to cover the cost of buying down points.

What are the maximum amount of seller concessions?

The chart below shows the maximum amount of allowable concessions, based on program and occupancy type.

Loan Type	Max Allowed Concessions
FHA	6% of Purchase Price
VA	4% of Purchase Price Unlimited for ‘closing costs” *** See below
USDA (Rural Development)	6% of Purchase Price ** See below
Conventional (Fannie Mae & Freddie Mac)	Primary and Second Home:  – 3% of purchase price, for down payments less than 10% – 6% of purchase price , for down payments of 10 – 25% – 9% of purchase price, for down payments of 25% or more Investment:  – 2% of purchase price
NON-QM Loans	Primary and Second Home: – 6% for down payments less than 20% – 4% for down payments of 20% or more Investment:  – Max of 3%

**USDA Loans:

USDA bases the LTV ratio on the appraised value over the purchase price. So, if the home value comes in higher than the purchase price, you can increase the loan amount up to appraised value, to cover closing costs, pre-paid costs, etc. 

*** VA Loans:

The VA does not consider the paying of closing costs a ‘Seller concession’. Sellers are allowed to cover 100% of the buyers’ closing costs in addition to 4% for seller concessions, which are identified below

Seller Concessions include, but are not limited to, the following:  

• payment of the buyer’s VA funding fee  
• prepayment of the buyer’s property taxes and insurance  
• gifts such as a television set or microwave oven  
• payment of extra points to provide permanent interest rate buydowns  
• provision of escrowed funds to provide temporary interest rate buydowns,  
• pay off of credit balances or judgments on behalf of the buyer. 

Seller Concessions … 

• Cannot be used toward the minimum down payment requirement. 
• Cannot exceed the actual amount of your closings costs and pre-paid expenses. If you have excess concessions, look at getting a home warranty or buying down the interest rate. Any left over concessions will be returns to the seller

Why would a seller offer concessions?

There are several reasons a seller might be willing to offer concessions:

• Increase marketability: A home with offered concessions might attract more buyers, especially in a competitive market.
• Negotiate a higher sale price: Sellers might be open to concessions to secure a higher overall selling price for the property.
• Address inspection findings: If the inspection reveals minor repairs, concessions can help address these issues and move the sale forward.

Here are some tips for negotiating seller concessions:

• Do your research: Understand typical closing costs in your area and potential repair needs identified in the inspection.
• Be clear about your request: Specify the exact concessions you’re seeking and their intended purpose.
• Consider the overall offer: Concessions can be a powerful tool, but remember they might affect the overall attractiveness of your offer to the seller, since the seller will only be getting the amount less the credit.

Popular Questions About Seller Concessions

Do seller concessions come out of pocket from the seller? No, seller concessions do not come out of the seller’s pocket, they will come out of the seller’s net proceeds at closing. However, if the seller owes more than their home is worth then the seller concessions would need to come out of the seller’s pocket, which it’s unlikely any seller will agree to do so.

Can seller concessions be used for down payment? No, seller concessions can not be used for a buyer’s down payment. The credit can only be used towards the buyer’s closing costs, escrows, and pre-paids. However, gift money can typically be used towards a buyer’s down payment. This is something that should be discussed with the buyer’s lender.

Wondering how to write an offer with seller concessions? When writing an offer that is going to include a request for a seller credit there is specific language that needs to be used. Typically it’s pretty simple, something along the lines of “the seller agrees to credit the buyer $8,000 towards their closing costs, escrows, and pre-paids at closing.”

Can a buyer request a seller concession for home repairs? Yes, it’s not uncommon for buyers to request a seller concession to put toward a home repair. A lot of buyers use a good portion of their savings for their down payment and closing costs, so having the funds to replace the carpet or an appliance may not be an option. This is where a seller may be offering a credit to do so or the buyer may request one.

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Seller concessions can be a valuable tool to help you manage upfront home buying costs. By understanding these options and negotiating effectively, you can move closer to achieving your dream of homeownership! At Priority Home Mortgage, we’re committed to empowering you throughout the home buying journey. Contact us today to discuss your mortgage options and how we can help you navigate the process of buying your dream home!