Seller Concessions on FHA Loans

Seller Concessions on FHA Loans

If you are thinking about getting an FHA loan, chances are that you have at least heard the words “seller concessions” during the process.

  • What are seller concessions on FHA loans?
  • What are not?
  • Which esxpenses?

What are seller concessions on FHA loans?

Seller concessions are things that the seller agrees to do if you purchase their home. Seller contributions are limited to 6% of the purchase price. Seller contributions exceeding the 6% limitation must result in a dollar-for-dollar reduction in sales price when calculating the maximum mortgage amount.

What are not?

Perhaps it is easier to identify what seller concessions *are not* – because these items involve something that is *not* considered a seller concession — rather an “inducement to buy” which is not allowed.

Which expenses?

Certain expenses paid by the seller and/or an interested 3rd party to the transaction, on behalf of the borrower, are considered “inducements to purchase” and result in a dollar-for-dollar reduction to the sales price of the property before applying the maximum LTV factor. These expenses include:

  • Seller Contributions exceeding 6% of the sales price;
  • Contributions exceeding the actual cost of prepaids, discounts, and other financing concessions;
  • Decorating allowances;
  • Repair allowances;
  • Moving costs;
  • Personal property inducements (not considered part of the real estate for the area (i.e., car, boat, riding lawn mower, furniture, television, etc); and Other costs determined inappropriate by HUD. Sales commissions paid by an interested 3rd party on a borrower’s current residence can be considered an inducement to purchase, and should be subtracted from the sales price before applying the maximum LTV factor.

Any Questions?

Have questions about seller concessions with an FHA loan here in Arizona? Be sure to speak with one of our loan officers who can help you understand what seller concessions are and aren’t.

This site is for informational purposes only. It is not sponsored or in any way affiliated with the government. If you are in need of a mortgage loan, consult with a licensed mortgage professional. All fair housing and equal housing opportunity laws apply when applying for a mortgage or buying a home. Copyright 2012.