Seller Concessions for FHA Mortgages

July 5, 2023

If you want to buy a home, one of your negotiating tools is known as the seller concession, where the seller agrees to give you money to offset some of the costs of buying the home. The money could be used to offset closing costs, to buy discount points to reduce the interest rate on the loan or several other purposes.

The FHA Lenders Handbook says for FHA mortgages, seller concessions as long as they are limited to six percent of the home's sales price and are used for specific purposes, which we’ll examine below.

If the seller contribution exceeds six percent, FHA loan rules require a dollar-for-dollar reduction in the loan amount. If your seller contribution is limited to six percent, and $10,500 exceeds that amount by $500, the FHA loan amount would be reduced by $500.

According to HUD 4000.1, the FHA Single Family Lender’s Handbook, typical seller concessions may cover:
 

• Loan discount points
• Origination fees
• Interest rate buydowns
• Closing cost assistance
• Payment of condominium fees
• Builder incentives
• Down payment assistance

Your seller may be tempted to throw in high-value belongings into the sale as another incentive, but these may be considered the same kind of inducement to purchase that the seller's contribution above six percent is.

In such cases, as with the cash contribution, if a seller contributes personal property deemed to be an inducement to purchase that too may result in a reduction in the loan amount.

If your seller offers concessions, talk to your FHA loan officer about the option and see what may be best. It is also good to know that such concessions are not restricted to the seller. Anyone with a financial stake in the outcome of the sale is limited by the seller concessions rule.

Should you expect to be given seller concessions in the current housing market? In the summer of 2022, seller concessions were practically non-existent due to the seller’s market and the state of the real estate market in general.

But as we move forward into improved conditions in the market, the seller concession may become a more viable negotiating tool.

------------------------------

Learn About the Path to Homeownership
Take the guesswork out of buying and owning a home. Once you know where you want to go, we'll get you there in 9 steps.

Step 1: How Much Can You Afford?
Step 2: Know Your Homebuyer Rights
Step 3: Basic Mortgage Terminology
Step 4: Shopping for a Mortgage
Step 5: Shopping for Your Home
Step 6: Making an Offer to the Seller
Step 7: Getting a Home Inspection
Step 8: Homeowner's Insurance
Step 9: What to Expect at Closing