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Can seller concessions exceed closing costs?

I am buying a house in Pennsylvania and am getting a 30-year conventional loan.  I am putting 20% down and getting 3% seller concessions.  Our total closing costs and prepaids are $6,000 and our the current seller concessions are $5,550.  The difference between the two is $450.

We found a few issues during the home inspection of things that aren't functioning and need to be fixed. The seller is strapped for cash so they won't be able to pay out of pocket for the repairs.  Are we able to ask for more than the $450?
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May 23 2012 - Pittsburgh
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Answers (22)

Yes, in some cases. There are limitations with certain loan programs as tothe amount of closing costs paid by the seller - so check with your lender. Otherwise, feel free to ask the seller for what you want and be prepared to negotiate.
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December 05 2012
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Thanks.My interest rate is locked, is it possible to reduce interest rate by paying for a point to use additional money.
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December 03 2012
Please advise how i can use these additional fund to buyers advantage rather then leaving it on table.
+++++++++++++++++++++++++++++++
Have the rest of it applied towards increasing your down payment.
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December 03 2012
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Hi, I'm in process of closing on house and running into situation of  contribution from seller and realtore is more then closing cost. Please advise how i can use these additional fund to buyers advantage rather then leaving it on table.
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December 03 2012
Thank you for posting your question on Zillow.

Seller assist cannot exceed closing costs and pre-paids. Good luck with your new home.

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September 14 2012
Luther,
You left out the Lender. Escrowing for weather related issues - i.e. delay in putting on a new required roof because of weather conditions - is typically only escrows most investors will allow. If there is a specific program to allow a pool, repairs, additions, etc that would need to be approved by lender upfront. Doing an escrow at closing without lenders knowledge and agreement is not allowed.
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May 26 2012
Hi user514171, yes you can ask for more than $450.  With the seller's in agreement and a conversation by agents and settlement company.  Have the sellers set aside $xxxx.xx with the settlement company in an escrow account.  Those funds will be released when both parties agree the work is completed.  Not a difficult process.  Hope this helps.
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May 25 2012
Profile picture for Pasadenan
Clay, Pres, and Jim...

from another thread... is it possible for the seller to provide for paint colors of new owner's choice after close of escrow or not?  It appears the seller doesn't want to do it before escrow or during escrow, as the colors may be wrong, or escrow may not close and colors would still be wrong.

What is the correct way to document such things in the contract offer and on the HUD-1?  What is the correct way to include this in the escrow instructions?

How does it affect the mortgage underwriting process?

Is there a limit for funds held in escrow for such seller concessions beyond the 6% previously mentioned?
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May 25 2012
Another option might be for the Seller to do the repairs and pay the invoices through the closing since they are "strapped for cash" (CA is an escrow state...not sure about PA). 
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May 24 2012
That may be the case in another state but not in Minnesota where I practice. 
===============

wrong.  I do loans in MN, it applies there as well. 

I admit it's a subtle nuance in the Fannie Mae (or FHA or Freddie Mac) guidelines; enough so that many LOs aren't familiar with it; but yes, it can be applied towards increasing the down payment beyond the minimum requirement.  




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May 23 2012
The seller didn't agree to $6,000 in concession, that is the borrowers closing costs and prepaids. The seller agreed to $5550 so the purchase price must be $185,000. If all that is needed is another $450 to cure the newly found issue just amend the contract to read seller to give $6,000 towards the borrower's closing costs and prepaids ( underwriting guidelines allow up to $11,100 concession) . If you want more than the actual costs of prepaids / closing costs and the seller is willing to give more, then amend the contract higher, like the Prez stated it can be applied to the DP or most lenders will accept a check off the HUD paid to a contractor for a small repair but there are limits to what the repair is and the cost. Many will allow up to a couple thousand dollars for something cosmetic, etc.     
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May 23 2012
You can also request to amend the contract that the seller concession can be applied to all closing costs, recurring and non-recurring and repairs to the home, if needed.  I have done this when the buyer wants some of the monies to be used towards repairs.  They seller has already agreed to the 6,000 and it gives you the flexibilty on how to use the funds.
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May 23 2012
That may be the case in another state but not in Minnesota where I practice. Certainly check with your loan officer and let us know it would be very informative!
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May 23 2012
yes, seller concession can exceed closing costs.

Any excess concession (beyond closing costs) may be used to increase the down payment. Operative word here is "increase" the down payment and not applied towards the minimum required down payment.

I run into this at least once a month because of agents writing up contracts that ask for more seller help than the amount of closing costs.
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May 23 2012
1) Seller concessions cannot exceed buyers closing costs. This holds true for FHA or Conventional it does not matter. Certainly you can ASK FOR MORE, but if the total exceeds your closing costs it will be refunded back to the seller. Bottom line: what you want the seller to do is not what the seller concessions is intended for. It's intent is to pay for expenses put on the HUD.

2) As far as the inspection goes I will first tell you what I would think the seller's listing agent is telling him right now. If the home can go both FHA and conventional the seller has a decision. If the items flagged on the inspection would effect an FHA purchase you might get some relief. However, you are a conventional buyer and the items flagged on the report do not effect your purchase. Typically for conventional buyers only extremely serious issues are negotiable. That is because the seller knows you have the money, and as you said these are minor.

3) So ultimately the seller will just have to way their options. If you have a strong offer on the home and are closing quickly it may be worth a little headache fixing the items versus possibly losing a buyer.

4) Your best option negotiation wise as a buyer is to ask for a sales price reduction. The seller is strapped for cash and you don't want to demand something the seller physically can't do. Come up with a number and ask for that off the sales price. Worst thing the seller can do is say NO, but that is how I would negotiate this.  
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May 23 2012
A 2075 appraisal has no bearing, you received that exterior only appraisal finding because you are putting down 20%. If the seller is willing to give more to cover the extra issues then renegotiate the concession, be sure it reads "towards closing costs and prepaids".  
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May 23 2012
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Thanks. I am still within the contingency period. I am not going to walk away from the house because the issues aren't major, but they are things that aren't functioning that I wasn't aware of prior to the inspection.

I could just ask the sellers to fix the issues, but I know that they are strapped for cash right now.  That is why I asked about increased concessions.  Also,  a full appraisal wasn't required for the house. This qualified for a form 2075 exterior-only appraisal, so I'm not sure how that factors in.

I'm just trying to decide the best way to move forward with negotiating with the seller before the contingency period ends.
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May 23 2012
   The obligation of the seller to repair home inspection items will depend on the way your contract is written. Most contracts include a contingency for home inspection items. This would give the buyer the ability to walk away or renegotiate some of the terms. If you don't want to walk away, then you do have the ability to re-negotiate so long as you are still within your property inspection contingency period. I would recommend speaking with your Real Estate Agent (if you have one) and allowing them to negotiate the fixing of the inspection items on your behalf. If you r contingency period is over, then your ability to negotiate for more money or for repairs will be limited to the kindness of the seller.
   THIS DOES NOT CONSTITUTE LEGAL ADVICE IF YOU NEED LEGAL ADVICE PLEASE SEEK THE COUNSEL OF A LICENSED ATTORNEY IN YOUR STATE.
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May 23 2012
A seller's concession inflates the final sale price.

There is already a sales concession in place, if the contract is amended to raise the concession but maintain the purchase price it's just less money to the seller @ closing.
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May 23 2012
When adding a seller's concession to the price paid for the home, please keep in mind that the home needs to appraise in order to obtain the mortgage.  A seller's concession inflates the final sale price.
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May 23 2012
Profile picture for shapiroamg
No. Sellers concessions can not exceed your closing costs and escrows. But speak to your mortgage person. Perhaps your insurance premium for the first year could be put on the HUD? If allowed it is technically a closing cost.
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May 23 2012
Whether you ask for the $450 or more you will have to amend the contract in order for the seller to contribute more than $5550. Conforming loans with 20% down payment will allow up to 6% seller concession ( Primary Res )
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May 23 2012
 
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