FHA Seller Concessions
One of the more attractive features of the FHA loan is the lack of limitations on seller-paid concessions.
When negotiating the purchase of any home, one of the most effective tools to reducing the acquisition cost of the home is using the FHA Loan combined with seller concession.
The average home has a total cost of anywhere from 3% to 6% in 3rd party acquisition costs. These costs are addressed in the closing cost section of this site.
By using HUD's FHA guidelines, the average borrower can save thousands of dollars in buyer-paid costs by having a seller pay these typical closing fees.
Be sure when negotiating your purchase contract that you ask for closing costs concessions. Most lenders, including FHA HUD insured loans, will allow up to 6% in seller concessions. With conventional loans, lenders can place limits on a home buyer's ability to ask for seller-paid closing costs. These limits can reduce the amount to 3%, or can even completely strip your ability to get any seller concessions at all!
If you don't have the funds to cover these costs, you'll most certainly want to have these fees paid by the seller when possible. In a buyer's market, you always want to ask. The worst case scenario is your contract is turned down completely. However, in the typical real estate transaction, a seller will simply counter your offer with what they are agreeable to. Your real estate agent can help you with these types of negotiations.
Seller paid concessions can pay the actual costs to close on your home purchase up to the percentage agreed to. These third party paid fees can cover your prepaid items, which include home owner insurance and property taxes through the end of the tax year, along with title insurance fees and your lender fees.
Seller Concessions Example
For example, if you're purchasing a home for $100,000, your typical costs to close would break down similar to this:
3% down payment - $3,000
5% closing costs - $5,000
Total cost to close - $8,000
By negotiating a closing cost concession into your contract, you can reduce the amount of funds you need to close to just your down payment. Check out our great FHA mortgage calculator that includes closing costs and concessions to see just what we mean!