I commented on another blog post about seller concessions, but I thought I'd expand on it here for a wider audience. Twice recently I've had deals hit speed bumps because seller concession limits weren't understood by the agents and the purchase agreement called for a greater contribution that the loan guidelines allowed. So, just in case you need a refresher, here ya go:
These are for conforming loans. If the client is going non-conforming, particularly subprime, concessions are usually a flat 6%.
First, seller concessions must be related to the financing. They are not for new furniture and they are definitely not for repairs. They can be applied towards closing costs, prepaids, to waive prorated taxes or to buy down the interest rate.
If you are financing more than 90%, you will be capped at 3%. This is the breakdown, be careful not to exceed it on your purchase agreements:
- Primary residence/second home > 90% LTV = 3% of value.
- Primary residence/second home > 75-90% LTV = 6% of value.
- Primary residence/second home < or = 75% LTV = 9% of value.
- Non-owner occupied properties = 2% of value.
And remember, value is determined by the purchase price or appraised value, whichever is less.