Reduce Closing Costs with Seller Contributions

Tuesday, August 01, 2017  


Struggling to save enough for your down payment and closing costs? There is an opportunity for you to reduce the amount of your final closing costs. Homebuyers have the opportunity to reduce closing costs with seller contributions, also known as seller concessions. Here’s how it works: An agreement is made between the buyer and seller where the seller contributes to the buyer’s home financing costs. Closing costs comprise of a variety of fees that can vary by city and state. The type of home loan, property occupancy, the home’s appraised value and the loan amount impact the amount a seller can contribute.

Here are the limitations on seller contributions for the four most common types of home loan programs:

Conventional Home Loans

  • Maximum contribution varies by LTV (Loan-To-Value ratio)
  • Primary Residence and Second Home
    • LTV/CLTV > 90%, maximum contribution is 3%
    • LTV/CLTV > 75.01-90%, maximum contribution is 6%
    • LTV/CLTV < 75%, maximum contribution is 9% for primary residence > 90% LTV (DU only).
  • Investment Property
    • Maximum 2% contribution regardless of LTV

FHA Home Loans

  • Maximum contribution is 6%

VA Home Loans

  • 4% of the established reasonable value of the property (NOV)
  • Does not include up 2 discount points and payment of the buyer’s closing costs.  These costs can be paid by the seller and are not included in the 4% limit
  • Does Include:
    • Payment of the buyer’s VA funding fee
    • Prepayment of the buyer’s property taxes and insurance
    • Gifts such as a television or microwave oven
    • Payment of extra points to provide permanent interest rate buydowns
    • Payoff of credit balances or judgments on behalf of the buyer

USDA Home Loans

  • Maximum contribution is 6%
  • Seller cannot pay for any item not directly associated with purchase of home (i.e. borrower’s collection accounts, credit cards, etc.)

Contact a Starkey Mortgage loan officer in your state to learn of the seller contributions available to your home purchase.