Tim Halladay of Victory Funding teaches what you need to know about Seller Concessions, including what programs allow them and what the limits are! This dynamic discussion is a must for home buyers! Listen to this from Mortgage Solutions Radio Show!
Seller concessions are allowed by lenders to enable the buyer of a property to finance a portion of their closing costs into the loan. Different loan programs allow different amounts to included in the transaction.
Caution! If you include too much seller concession you could be leaving money on the table for the seller that you paid for!!!
It is important to calculate your seller concessions as accurately as possible so you take full advantage of this financing tool without leaving your borrowed funds in the pocket of seller.
To structure your transaction properly you must be able to roughly calculate the closing costs AND allowed pre-paid items like taxes and insurance required to fund your escrow account and pre-paid interest to the end of the month you close. If you are not sure, it is important to consult your knowledgeable loan officer who should be able to give you a fairly close estimate.
Once you have that estimate in hand I like to shave a bit off of it and use a lower amount, just in case you get a pleasant surprise and your closing costs are lower than you anticipated.
Now you can add the proper amount of concession to the net price you want to give your seller to come up with your accurate purchase price. You need to certain that it does not exceed the allowable concession or your lender could deny the loan for having too much contribution from the seller.
The reason you add the concession to the seller net is because lenders use the lower amount of the purchase price or the appraised value. In order to use the concession, it must be included in the purchase price and the property must appraise for that higher value.
FHA and USDA each allow a 6% seller concession with 3.5% down for Owner Occupied property.
Conventional (Fannie Mae and Freddie Mac) allow up to a 3% seller concession with up to 5% down and up to 6% with 10% down for Owner Occupied and 2% for Non-Owner Occupied property.
VA allows unlimited concessions PLUS 4% for pre-paid costs for Owner Occupied property.
Seller concessions allow you, the borrower, to keep your cash invested while you pay for your closing costs with less expensive funds! Wheather you live in Saratoga Springs, Albany, Schenectady, Troy, Malta or anywhere in the US Seller concessions are a powerful tool for Mortgage Brokers like Victory Funding and Real Estate Agents at Living Well Realty to help buyers and investors buy more property!
