What Are Seller Concessions? How Seller Credits Work

You're ready to buy, and you'd like to keep more of your savings in the bank after closing. One way some Home Buyers do that is by asking the seller to help with the costs of closing. That help is called a seller concession, or a seller credit, and it can be a useful part of your Purchase plan.

Here's how seller concessions work, what they can and can't pay for, and how to ask for them the right way.

What is a seller concession?

A seller concession is money the seller agrees to put toward your costs of buying the home. Instead of handing you cash, the seller's contribution shows up as a credit on your closing documents and is applied to eligible costs at the closing table.

Concessions are negotiated as part of your offer. Your real estate agent writes the request into the sales contract, and the seller accepts, counters or declines it just like any other term.

What can seller concessions pay for?

Seller credits are generally used for closing costs and prepaid items, such as:

• Lender and processing fees
• Appraisal and credit report fees
• Title insurance and settlement or attorney fees
• Recording fees and transfer-related costs, where allowed
• Prepaid items like homeowners insurance and the initial escrow deposit for property taxes
• Discount points, if you choose to buy down your interest rate

What can't they pay for?

Seller concessions usually can't be used toward your down payment or your required cash reserves, and you can't receive any leftover credit as cash back. If the credit is larger than your eligible costs, the extra typically has to be reduced in the contract. That's why it helps to know your estimated costs before you write the offer.

Every loan program sets a limit

Each loan type caps how much a seller can contribute. The limit depends on the program, and for some programs it also depends on how much you're putting down or whether the home is your primary residence, a second home or an investment property.

• Conventional Loans set limits based on your down payment and how you'll use the property.
• FHA Loans have their own cap on seller-paid costs.
• VA and USDA loans follow their own guidelines for seller help.

We'll look at your loan options and tell you the limit that applies to you, so the amount in your contract fits your loan.

How to ask for seller concessions in your offer

• Talk with us first. Get pre-approved and ask for an estimate of your closing costs, so you know what amount makes sense to request.
• Work with your agent on strategy. In some markets sellers welcome a clean offer, and in others there's more room to negotiate. Your agent knows the local picture.
• Write it into the contract. A seller credit has to be in the signed sales contract to be counted. A verbal promise isn't enough.
• Expect it to affect the price conversation. Sometimes buyers offer a little more on the price in exchange for a credit. The home still has to appraise at the contract price, so we'll keep that in mind with you.
• Keep us in the loop on changes. If the credit is changed after inspection or in a counteroffer, send us the updated addendum right away.

Seller concessions and other kinds of help

Seller credits can work alongside other help. Some Home Buyers combine a seller credit for closing costs with a family gift toward the down payment. Our guide Can I Use Gift Money for a Down Payment? explains how gift funds work, and Who Qualifies for Down Payment Assistance? covers assistance programs.

Your next step

If you'd like to keep more cash on hand after you buy, let's talk before you write your offer. We'll learn about your goals, estimate your closing costs, and tell you how much seller help your loan option allows, so you and your agent can make a confident offer.

Learn more on our Purchase page, compare FHA Loans and Conventional Loans, or call Trust Home Financial at (888) 392-5321. We're Helping Home Buyers find the loan that fits their goals.

Trust Home Financial LLC | NMLS ID # 2567578 | nmlsconsumeraccess.org | Equal Housing Opportunity. Subject to approval. Seller contribution limits are set by each loan program and investor and can change. This article is for general information, is not tax or legal advice, and is not a commitment to lend.