Seller concessions

• Reduce the cash required to buy
• Keep the loan-to-value at a certain level to avoid PMI, or get a better rate
• Qualify for the financing by using the seller concession to buy down the rate
• Buy down the rate to have lower monthly payments

The concept of a seller concession is simple
Agree to the sale price, and then add the seller concession to arrive at the contract price. In essence the seller gets nothing less, and the buyer can finance the "closing costs"

Seller concessions are allowed by virtually every mainstream mortgage program.
There is nothing unusual about it, yet seller/seller's agent (irrational) pushback is not uncommon. You could consider introducing the seller concession after the negotiations by introducing it during the attorney review process. Experienced real estate attorneys are familiar with the concept.

Seller could argue that the sale price is too low
Fair comment. We must assume that the selling realtor supports and protects the motivated seller to make sure a fair sale price is agreed to.

Will the appraisal support the higher value?
Appraising is not an exact science. Ultimately there is a value range appraisers can support. It is critical (and only fair to the seller) that the appraisal be performed without delay.

How much is the allowable seller concession?
Allowable seller concessions rage from 3-6% of the CONTRACT PRICE (not the sale price). If the agreed to sale price is $100,000, then a 6% seller concession is $6,383, and the contract price is $106,383 (The $100,000 represents 94% of the price, so divide by 94 and multiply by 6 to get the SC, then add them up to get the contract price)

Can a seller concession can be used for "closing costs" only?
It can NEVER be used as a down payment. But note the quotation marks! You can use it for more than just closing costs. Every mortgage program is different. Here is what FHA allows:

• Discount points
• Buydown fees
• Buyer closing costs
• Prepaids
• Up-Front MIP (must cover all or none)
• 12 months HOA fees or property taxes

How can I minimize the cash requirement?
Negotiate a 6% seller concession. This will allow us to include all eligible "closing costs", and if there is a surplus, then we can reduce the seller concession (and the contract price) at the close. Ultimately we can structure it in such as way that the buyer will be responsible for down payment and escrows (maybe not all) only.
Also note that first time buyers usually come from a rental situation. Rents are paid in advance and mortgages in arrears. As a result the buyer will "skip" a payment and have some additional cash available as a result.

Seller concession matrix and calculator
Below is matrix showing how much less cash is required at different down payment levels. This assumes that the are enough qualifying "closing costs" to use the seller concession in full. The link to the calculator (to evaluate scenarios) is at the bottom.

To use the calculator to evaluate scenarios go here

(Please note that I created it myself, so it lacks some polish :)