What is a sellers concession mortgage?
A seller concession is when the seller of the home you are purchasing credits back to you at closing from 1%-6% of the agreed upon sales price of the home. This money can be used to help off-set closing costs. This is most helpful to first time home buyers who do not have a lot a cash in reserve to pay their closing costs out of pocket.
The seller's concession will be written into the offer to purchase and agreed upon by both seller and buyer with the accepted offer to purchase ie. Accepted offer to purchase for $200,000.00 with 3% seller concessions you would have $6,000.00 credited to you towards your total closing costs. Closing costs include, but are not limited to, loan origination fees, loan discount fees, appraisal fees, credit report fees, title work, closing/escrow fees and underwriting fees. Money from the seller concessions can also include pre-paid interest, escrow for your homeowners insurance and taxes if the offer to purchase if also wrote for pre-paids along with the closing costs.
In most cases you will not be able to get a check back for any money that is not used from the seller concessions. You will in most cases be able to get a check back at closing for any earnest money that you have put down on the home if it is not used for closing costs or pre-paids.
There's no such thing as a " sellers concession mortgage." There is such a thing, though, as a plain old mortgage which happens to be part of a transaction where the seller contributes part of the sale proceeds towards the buyer's closing costs. The money the seller kicks in to pay those closing costs is referred to as a "seller contribution". In everyday parlance, people --including alot of loan officers-- often use the terms "seller contribution" and "seller concession" interchangeably. In any event, as I was getting at, a "seller contribution" is where the seller in a home purchase uses part of their proceeds to pay for the buyer's closing costs.
For FHA loans, the seller can contribute up to 6% of the purchase price towards not only the buyer's closing costs (like title, appraisal, origination fee, title expenses) as well as pre-paid items (like homeowner's insurance, pre-paid interest and escrows). For conventional/conforming loans, the seller can contribute up to either 2, 3 or 6% of the purchase price, depending on the loan-to-value ratio and type of occupancy, i.e. principal residence, second home or investment property.
Two significant points must be made here.
#1. You (the buyer) are financing the closing costs with a seller's concession. For example: Accepted offer is for $100,000. Contract and financing are based on $106,000. The seller still receives the agreed upon $100,000. The extra $6,000 is applied to closing costs and pre-paids.
#2. The property must appraise for $106,000.
A seller contribution is more common on new construction where the builder might offer to truly pay some portion of your closing costs. In this case, it has nothing to do with the loan structure. It's a credit that's applied on the HUD1.