Profile picture for Doug Reynolds

Seller concession rules for FHA mortgages to be changed

Sometime this summer, the Federal Housing Administration plans to slash maximum "seller concessions" from 6% of the home price to 3%. Seller concession rules allow buyers to look to the property seller to pay for a variety of services and taxes connected with the transaction — loan origination and local transfer fees, appraisals, inspections, closing and escrow costs among others — though not the down payment.

Say you're buying a $200,000 house. If you are using FHA financing under current rules, you can structure the contract so that the seller agrees to pay all closing costs and even some repairs the house needs at closing, up to 6% of the price or $12,000. On a $400,000 house, allowable concessions go to $24,000. That's huge, especially if you have to struggle to come up with a 3.5% down payment and you're not sure where you'll find the closing and repair money.

Doug's Take:  To be honest, currently in Sacramento's market where homes below 300k are selling quite fast with multiple offers, this is not a huge deal.  About 2.5 years ago when the market was still doing bad you could get a 6% credit for a buyer but now, there's too many buyers out there to get more than a 3% credit.  It's still happening but even now, 3% credits are starting to disappear and buyers are coming in with more money to use for down payment and closing costs.  To me, this move is a smart one for FHA and not a huge deal for our local market.  As a buyer, if you NEED 6% credit to be able to buy a house, you probably should not be buying that home anyway.

clear skies,

doug reynolds

  • June 07 2010 - US
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Answers (2)

Profile picture for wetdawgs
My opinion is that it is a good thing, and I agree that if a buyer needs a 6% seller concession to be able to buy, they are not likely to be ready to buy.
  • June 07 2010
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Great move for FHA to real in the allowable credit.  In some cases a large 6% sellers concession was a creative way to bump the prices thru incentives.  3% is a reasonable number for most buyers.

  • June 07 2010
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