FHA points to reduced seller concessions

Mortgage and Lending with Sierra Pacific Mortgage Loan Officer, NMLS 184479

FHA yesterday announced plans to increase lender requirements and to consider reducing allowed seller concessions.

The first announcement was about increased lender requirements which may lead to some further tightening in lender underwriting standards.

More significant for most consumers is the announcement about the renewal of plans to "reduce the maximum allowable seller concession from its current level to one more in line with industry norms."

This has been under consideration for a couple years or so. It was part of the reforms that were discussed in 2010 by then Asst Secretary David H Stevens.

"We are also proposing a third policy measure to reduce the maximum permissible seller concession from its current 6 percent level to 3 percent, which is in line with industry norms. The current level exposes the FHA to excess risk by creating incentives to inflate appraised value."

The new announcement does not indicate a proposed level for seller concessions and it does not provide a definite time frame.

The biggest impact if seller concessions are reduced will be felt at the lower loan sizes. Seller concessions of 3% cover most of the closing costs for loan amounts over $150,000. For loan amounts under $100,000, buyers will see their required funds to close increase significantly. Or they will pay a higher rate in order to fund some of their loan costs in their interest rate.

FHA lending has seen numerous changes over the last few months. One of the most sigificant impacts on consumers has been with a series of increases in the monthly mortgage insurance premium.


FHA 30 Yr MMI Rates



MI Payment for

$150,000 Loan



Since April 2011


$143.80 monthly


After Oct 2010


$112.50 monthly


Before Oct 2010


$62.50 monthly


Another of the changes discussed in the proposals made in 2010 was an increase in the minimum downpayments to 5%.  Fortunately, I have not seen anything further on that.

Please leave your thoughts on this possible change. There will be a comment period announced when the specifics of the proposed changes on seller concessions are published.

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Richard Smith
NMLS# 184479 TN# 104002 GA# 28928 

Conventional, FHA, FHA 203k, HUD $100 down purchases, VA,

Rural Development ( USDA), and Jumbo Loans

Lending in Chattanooga, Tennessee and Georgia for over 20 years.

Sierra Pacific Mortgage

Cell phone: 423-280-0345 Email: Richard.Smith@SPM1.com

Visit my website to inquiry about a home loan.

Read my most recent articles in Scotsman Guide.

This blog represents the opinions of Richard Smith. The posts and comments written on the blog do not represent the opinions or positions of Sierra Pacific Mortgage. 


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David Shamansky
US Mortgages - David Shamansky - Highlands Ranch, CO
Creative, Aggressive & 560 FICO - OK, Colorado Mtg

Great post! My only question is "if this is so important today why was it not on the table when values were skyrocketing in an overheated and inflated market"? Call it what you will its all about the money and the feds will do anything they can to create  reasons to charge more and give less...

Sad government is based from the word govern not "control"erment which is how they operate.


Jan 21, 2012 06:17 AM #1
Richard Smith
Sierra Pacific Mortgage - Chattanooga, TN
FHA VA Rural Development in TN GA

I don't think that the 6% seller concessions impacts appraisals very much. Would it mean that an $80,000 value would then instead be valued at $82,400 value?  It seems silly to me. And the impact is to limit homes to buyers on the lower end of the income scale.

I think we need to let things stabilize before doing more to burden housing.



Jan 21, 2012 07:41 AM #2
Scot Rife
Centerville, OH

The reduced seller concession will create more of a barrier to home ownership for the low to moderate income buyer that is purchasing homes with lower prices. This is the group that FHA is there to serve. I serve home buyers in a market that people can acually buy a home for $50,000 or less. In those price ranges, first-time home buyers often rely on the 6% seller concession to cover all of their closing costs and pre-paids.

Jan 28, 2012 01:05 AM #3
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Richard Smith

FHA VA Rural Development in TN GA
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