Besides the principal and interest payments, there are many other fees associated with homebuying. Seller concessions are a great way for buyers to decrease their overall costs when negotiating a lower price on a house isn’t an option.
Here are some common seller concessions:
Closing Costs
Closing costs include fees such as title insurance, property taxes, home appraisal, and application and loan origination fees. In general, experts suggest allocating 3-6% of the loan amount for closing costs. Depending on the concession agreement, a seller could cover all or part of the closing costs for the buyer.
Seller-Paid Points
Seller-paid points are a concession in which a seller buys mortgage points that can lower the buyer’s interest payments over the life of their loan. Typically, purchasing one mortgage point can lower the interest rate by 0.25%.
Repair and Maintenance Costs
Depending on the age and condition, a house may need many costly repairs. If any significant damage is uncovered through the home inspection, seller credit can be given to the buyer and potentially save them thousands of dollars on repairs.
Limits to Consider
For FHA and USDA loans, the limit for seller concessions is 6% of the loan amount. When it comes to conventional loans, the limit ranges from 3-6% of the home’s purchase price. Lastly, VA loans have a limit of 4% of the home’s purchase price. Even with these limits, seller concessions are a helpful way for homebuyers to lower their costs.