Seller concession limits: How much can you ask for?

Seller concessions in today's buyer's market can be substantial, offering buyers a chance to negotiate credits or assistance from lenders when purchasing a home. However, all major loan programs limit concessions to a certain percentage of the purchase price. It is crucial to know these limits to avoid being misled by the lender at closing and to end up with less than expected.

For conventional loans, the cap on concessions depends on the size of the down payment. If your down payment is under 10%, you can receive concessions up to 3%. If it's between 10% and 24.99%, the cap is up to 6%, and if it's 25% or more, the maximum is 9%. For instance, on a $450,000 home with a 5% down payment, your maximum concessions would be $13,500. Conversely, with a 20% down payment, you could get up to $27,000 in concessions.

Concessions can be used to cover closing costs, prepaid expenses, and up to 12 months of homeowners association fees. They cannot be used for the down payment, expanding cash reserves, or toward the minimum borrower contribution. Unlike conventional loans, FHA loans do not have down payment size restrictions on concessions, allowing up to 6% of the purchase price or appraised value, whichever is lower.

When using seller concessions, it's essential to consider your closing budget and where you'd benefit most from the seller's contribution. Review the eligible expenses covered by concessions and your closing costs estimate. You might also explore options like buying down your rate or negotiating a lower sale price to maximize the value of your concessions.