FHA, Loan Information, Loan Programs, Northern Virginia Real Estate
FHA seller concession rules
June 2, 2010 by Jeff Thomas · 2 Comments
The Federal Housing Administration (FHA home loans in Virginia) is eliminating one of the mainstays to its program sometime this summer. Gone will be the 6 percent seller concession and in will be the 3 percent seller concession. The reason for eliminating the concession according to FHA is the 6 percent seller concession exposes them to too much risk. This has been one of the key selling points with FHA for decades. But if sellers and buyers move fast there is a possibility they can still take advantage of the higher seller concession.
The buyers must still save or be gifted the money for the down payment to purchase the home. The current minimum down payment is 3.50% of the sales price. The current guidelines on seller concession allow sellers to pay for all of or part of buyers closing costs when purchasing a property. Items connected with the transaction such as — loan origination and discount points, state and county transfer stamps and fees, an appraisal, inspections, attorney and title closing costs.
When it comes to lower priced homes, closing and loan expenses typically represent a higher percentage of the total loan closing costs than on higher prices homes. In Fairfax, Virginia and Northern Virginia, closing costs typically run between 2.50% and 3.50% of the sales price of the home. So on a $300,000 home purchase, that could be an extra $7,500 to $10,500 of out of pocket expenses for a home buyer. Current with FHA financing rules, the contract can be structured so the seller agrees to pay all closing costs up to 6% ($18,000) at settlement. This amount could even include some small required repairs. Once the rule change takes effect, the max concessions will be a flat 3% of the sales price.
If you use Fannie Mae or Freddie Mac financing, seller concessions is generally limited to 3% for down payments below 20% of the sales price. Although concessions can be much higher when larger down payments are being used.
Bottom line is this: the helping hand of an FHA home loan is getting smaller and smaller. First the down payment was increased from 2.25% (3% in the new home) to a flat 3.50% down payment. Then a minimum credit score, now a decrease of seller concessions from 6% to 3% of the sales price.
…..Summary Seller closing costs generally come as a surprise to home sellers particularly when home sellers find out that they ll have to pay anywhere between 2 to 7 percent of the sales price in fees and costs. They can really add up to an enormous sum and deprive sellers of their hard-earned home equity when they sell a home. High closing costs and fees can cut into the profit a seller is expecting to pocket from the sale of his or her home or increase the amount of money the seller needs to come to the closing if the seller owes more money on his mortgages than the amount he or she will net from the sale of the home.
Monex – Thanks for the post. Generally the seller is aware of the dollar amount of the closing concessions being negotiated on the sale of their property. Typically a listing agent would use a seller net sheet to assist their client with calculating the amount of money expected (profits or money owed) at closing.