Need Help With Closing Costs? Can You Ask the Seller to Pay Some of Them?

What is a seller concession?

A seller concession is money the seller agrees to put toward your costs to buy the home. You do not get a check. Instead, the money shows up as a credit on your closing papers. That credit lowers the cash you need to bring on closing day.

Closing costs are the fees to get the loan and transfer the home. They can include things like:

• The appraisal and credit report fees.
• Title insurance and title company fees.
• Recording fees and state taxes on the sale or the loan.
• Prepaid items, like the first year of home insurance and money to start your escrow account.

The Consumer Financial Protection Bureau has a simple guide to these costs. Your Loan Estimate also lists them line by line.

Why would a seller say yes?

Sellers want the home sold. A buyer who is short on cash for closing may not be able to buy at all. So a seller may agree to help in order to close the deal. This is more common when homes sit on the market longer, or when the home needs some work.

In a hot market with many offers, it is harder. A seller may pick an offer with no request for help. That is why timing and how you ask both matter.

There is a limit, and it depends on the loan

You cannot ask the seller to pay any amount you want. Each kind of loan sets a cap. The cap is a share of the price or value of the home. Here is the big picture:

• Conventional loans: The cap depends on how much you put down. A smaller down payment means a smaller cap. A home you plan to rent out has a lower cap than a home you will live in.
• FHA loans: HUD sets one cap for the seller and others who have a stake in the sale.
• VA loans: The VA treats normal closing costs one way and extra items, like paying off a buyer's debt, another way. Only the extra items count toward its cap.
• USDA loans: USDA sets its own cap too.

The exact caps can change, and they depend on your loan and down payment. Ask your loan officer for your number before you write the offer. That way you do not ask for more than you can use.

Rules that trip people up

• The credit cannot be more than your real costs. If the seller agrees to more than your closing costs, the extra does not come to you as cash. It is usually lost, or the price has to be changed.
• It usually cannot pay your down payment. Seller help goes to closing costs and prepaid items. You still need your own funds for the down payment.
• It has to be in writing. The amount needs to be in the signed contract. Your lender has to see it there.
• The appraisal still has to work. Some buyers raise the price to cover the help. But if the home does not appraise at the higher price, the plan can fall apart.

How to ask the right way

A good request is clear and easy for the seller to say yes to. Here are a few tips:

• Know your numbers first. Get a fee sheet from your loan officer. Then you will know about how much help you truly need.
• Ask for a dollar amount. A clear amount is easier to agree on than a vague request.
• Look at the whole offer. A seller cares about the money they walk away with. Asking for help while offering a fair price can still be a strong offer.
• Be flexible on other terms. A closing date that works for the seller can make your request easier to accept.
• Leave room for a change. If your costs come in lower, the unused part does not help you. It is better to be close than to ask for far too much.

A quick example

Picture a first-time buyer in Murfreesboro. She has saved enough for her down payment, but closing costs would wipe out her savings. Her agent asks her loan officer for a fee sheet first. Then the agent writes an offer near the asking price, with a set dollar amount from the seller toward closing costs. The amount fits under her loan's cap and below her real costs. The home has been on the market for a few weeks, so the seller agrees. At closing, the credit shows up on her papers, and she keeps some savings in the bank for a rainy day.

Other ways to lower cash at closing

Seller help is not the only tool. You may also be able to use:

• A lender credit. You take a slightly higher rate, and the lender pays part of your costs. Ask your loan officer to compare the options.
• Gift money. Many loans let family members give you money for the home, with the right paperwork.
• Down payment help programs. Some state and local programs can help with costs for buyers who qualify.

Common questions

Buying a home in Middle Tennessee?

We can help you figure out your closing costs before you write an offer, so you know what to ask for. Reach out through our contact page and we will connect you with a Heathrow Mortgage loan originator. You can also start an application online.