What Are Seller Concessions?

Seller concessions are the credits you receive from the seller to pay down a PORTION of your closing costs.

Keyword: portion

Closing on a home with a mortgage will require standard fees like title searches, insurance, taxes, appraisal, recording fees etc. They can pile up quickly!

So, having the seller pay a portion of the costs, is a very common practice.

The seller will use a portion of their equity from the sale to allow you to pay less at closing.

Seller concessions have a limit. Here are some standard limits:

Investment: 2%
Conventional: 3% (can be higher with larger down payments)
FHA/USDA/VA: 6%

This doesn't come without a cost though... often, the seller concessions are added to the purchase price in the negotiation phase.

For example, let's say a house was for sale for $97k. Instead of pay for all of the closing costs, you realtor suggests you put in an offer for $100k with $3k seller concessions. So, you'd receive $3k at closing to pay down your closing costs... but, ultimately, you just added the $3k into the loan amount. And now you have to pay interest on it over the life of the loan.

If you only plan on being in the property for less than 8 years, it might make sense to take seller concession and reduce up-front costs as much as possible.

If you plan on being in the property for a longer duration, you'll want to use up-front costs to lower total costs over the life of the loan.

Important note: seller concessions will never be used to pay down your down payment. Your down payment is considered the "minimum required investment" to close on your home.

So, what do you do if you have seller credit leftover after your closing costs are paid?

Purchase discount points! Buying discount points is also referred to as "buying down the rate". Essentially, you'll pre-pay interest on the loan to get a lower rate and reduce costs over the life of the loan.

Seller concessions are meant to help you offset the costs of closing on a home. They will very rarely cover every closing cost of your loan.

Make sure you talk with your realtor and lender on the best strategy for you! It's not a one-size-fits-all! Make sure your purchase aligns with you and your family's financial and emotional goals.



Kyle Seagraves
Mortgage Consultant
Motto Mortgage Alliance
NMLS# 1701021

0:04 What Are Seller Concessions?
1:34 Seller concessions are limited y loan type
2:19 How does it affect your negotiation?
4:11 Discount points
4:25 Par rate
5:06 Main goal of seller concessions

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[LucasSeiler-impq]

When do you actually receive the seller concessions? For example, buyer agrees to 3% seller credit. But the buyer has to pay for inspection, appraisal, etc beforehand. Do you get paid what you spent on those fees at the end from the seller when the deal closes?

[JackMeyHoffer]

Hi Kyle,
If there's money left over from the seller concessions can we put that towards the seller buying new appliances for the home?
This is assuming all closing costs all prepaids all buying down of the interest rate has been maxed out.

[Blueflame]

Hello, I am still trying to understand seller concessions.

I am working with a realtor who says that seller concessions have nothing to do with the seller, but more with the appraisal that comes back after the lender orders it. Which will then lets the lender know how much mortgage the buyer can be approved for.

If the appraisal comes back lower than what the asking price is, then the lender will not approve the seller credit. And it is up to the buyer compensate between the gap of the asking price and the appraised value if they want the home.

The way I understand it, is that if the seller accepts seller concessions, they are willingly giving up a percentage of the homes equity to pay for the buyers closing costs, which is rolled into the loan. Please correct me if I'm wrong.

[griselgarcia]

When do u negotiate this at the beginning or after a counter offer or after appraisal

[taniasegura]

If the buyers want to purchase a home for a lot less than the loan amount they are pre-approved for, would the seller concession drop? The seller concession in our pre-approval letter is not a percentage but a specific amount in dollars. Thank you!

[NoWayJose]

Can I use seller concessions or lender credits to pay for a home warranty at closing?

[meditationmedicine]

What does it mean when a buyer says I concessions