Home Loans May Be Denied When Sellers Help With Closing Costs

Home buyers like to ask sellers for a lot of things. Seller concessions (money from the seller) to help with buyer closing costs, for example.  When a seller agrees to seller concessions, that buyer’s home loan application could be jeopardized.  That’s right. Why?  Aren’t seller concessions permissable. Yes there are. Are there limits for seller concessions? Yes there are. There are limits on the amount of seller concessions buyers can receive for each home loan type.  Go over that limit, and the lender may not approve the home loan.

When negotiating on seller concessions, whether you are the seller or home buyer, know the limit for seller concessions for the type of home loan the buyer intends to use.

Here are the limits for seller concessions:

1. Conventional Home Loans: 6% of the purchase price of the home. This limit may be lower depending on the amount of the buyer’s down payment and loan-to-value ratio (amount of home loan in relation to the value of the home).
2. FHA Home Loans: 6% of the purchase price or appraisal value of the home, whichever is lower.
3. VA-Backed Home Loans: 4% of the purchase price of the home.
4. USDA Home Loans: 6% of the purchase price of the home.

There can be other limits to financial assistance home buyers may receive from third parties as criteria for home loan approval.  For buyers, ensure you discuss this with your lender before negotiating home purchase contracts.  Know what the limits are on monies you can receive to cover your home buying costs. For sellers, closely review the offers you receive. Those offers should contain information about the type of home loan that prospective buyer intends to use, the home loan and down payment amounts, and of course the buyer’s desired home purchase price.