“What’s the maximum a seller can pay to buyer’s closing costs?” This is a question I’m often asked and the answer – as with many mortgage questions – is “it depends.”
Allowable seller concessions can cover quite a bit. Typically they are used to pay some or all of the following charges associated with obtaining a mortgage:
– origination fees, discount points, commitment fees
– appraisal costs, flood certifications, credit reports, tax service fees
– transfer taxes, stamps, attorneys’ fees, survey charges, title insurance premiums
– funds to subsidize a temporary or permanent interest rate buydown
Also seller concessions can cover prepaid items, such as:
– interest charges
– real estate tax escrows
– hazard insurance premiums
– HOA assessments covering any period after the settlement date
– mortgage insurance premiums
The difference on how much can be paid depends on the loan type. The following are the maximum percentage of the sales price that can go to a buyer’s expenses:
Conventional (primary or secondary)
3-5% down payment: 3%
10-25% down payment: 6%
25% or more down payment: 9%
Conventional (investment): 2%
FHA: 6%
VA: 4%
USDA: no limit but individual lenders can set a limit
When structuring a contract understanding what and how much the seller can pay on the buyer’s behalf can be beneficial to you and your client. If you ever have a question on what can be paid via seller concessions, please give me a call!
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