Seller Credits Valuable for Homebuyer Success

May 22, 2015 By

When buying a home, there are many costs in order to close on the purchase of a new home, including but not limited to, closing costs, title insurance, and associated fees. Home buying is often one of the largest financial investments clients will make. Negotiating seller concessions (also known as seller credits or contributions) into the purchase agreement can often be a tremendous benefit to their ability to afford a home.

There are limitations to how much a seller can pay and the amount can vary anywhere from three to nine percent of the purchase price or the home’s appraised value (whichever is lower). The specific amount depends on the type of mortgage, how the property will be occupied, and how much the buyer borrows from the lender. Speaking with your lender early in the process will help you find out how much your closing costs will be and how much the seller can contribute towards the closing.

Concession limits expressed as a percentage of the sales price or appraised value based on loan-to-value (LTV) ratios:

Conventional Loans

LTV 90% or higher = 3%
LTV 76% to 90% = 6%
LTV 75% or less = 9%
Investment Property = 2%

FHA

All LTV = 6%

USDA

All LTV = 6%

VA Loans

All LTV = 4%

Jumbo Loans

All LTV = 3% – 9% (contact us for specific details)

A buyer can use contributions from the seller to pay for closing costs and prepaid items. Items such as property taxes, insurance, and interest. The seller contribution cannot exceed the actual costs that the buyer incurs, which prevents the buyer from receiving cash back at closing.

If you have questions about seller concessions or are looking to get pre-approved for a home loan, contact PRM today!

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