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Negotiating with the seller to pay a portion of your closing costs is fairly common when buying a home. The seller may offer a variety of options to make the sale of the home more attractive and seller concessions are one of the bargaining chips that can be used in such negotiations.

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Seller Concessions for FHA Loan Closing Costs

March 10, 2022

Seller Concessions for FHA Loan Closing Costs
It can be a struggle for some to manage closing costs for an FHA home loan. Between those costs, the down payment, saving up for moving expenses, and other costs, it can feel like a lot. But there’s a secret weapon you can use to manage your closing costs; it requires a bit of negotiation but it is an option that could save you thousands on the transaction.

The secret weapon? Seller contributions to your closing costs for your FHA purchase loan--what the seller is permitted to contribute under the rules for your FHA mortgage. These contributions are capped by law but do permit the seller to contribute toward your closing expenses. Just never the down payment.

Negotiating with the seller to pay a portion of your closing costs is (believe it or not) fairly common when buying a home. The seller may offer a variety of options to make the sale of the home more attractive and seller concessions are one of the bargaining chips that can be used in such negotiations.

And if you run the numbers on the allowable seller concessions and you’ll see this is an option worth overcoming a typical fear of bargaining to get as it may be worth thousands of dollars in savings for the buyer.

Do you know how much is the seller allowed to contribute? FHA loan rules in HUD 4000.1, the FHA Single-Family Lender’s Handbook, limit seller contributions toward your closing costs at six percent of the price of the home. How much is six percent?

Let’s set a hypothetical home sale price at $133,000. Six percent of that amount is $7,980. 
Would you choose to haggle if that slightly uncomfortable process results in your saving nearly eight thousand dollars?

That cash might come in handy at closing time. It could help you make a larger down payment and that will result in a more affordable loan assuming you don’t finance add-ons or the Up-Front Mortgage Insurance Premium.

The seller is limited to contributing six percent, but what happens if you are given more than that?

If you get a seller contribution that exceeds the six percent cap, the lender is simply required to reduce the amount of your home loan by the amount that exceeds the six percent.
 
It’s a very good idea to ask your loan officer about seller contributions and if you want to get an even lower down payment -- assuming you use money freed up by the six percent contribution for a down payment --  you can explore state and local first-time homebuyer programs offering down payment assistance.

These programs offer help to qualifying applicants who have either not owned a home before, haven’t owned one in the last three years, or who otherwise meet the requirements of the program.

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