Sellers Assist: Rules & Guidelines (2022)

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What is sellers assist in real estate?

FHA loans, VA loans, USDA loans, and conventional mortgages permit the seller to pay a specified percentage of your closing and escrow costs. This is commonly referred to as "a seller assist" or "seller concessions."

A seller assist can benefit both parties in certain situations. It obviously makes the home more affordable for the buyer. But it can also keep a pending deal from falling through on a seller because the buyer comes up short on the cash needed to close.

Of course, the seller is never required to pay for your closing costs. And the seller is never allowed to pay for your down payment.

How do seller concessions work?

Sellers will sometimes offer closing cost assistance, then increase the sales price by the same amount. This allows them to net roughly the same amount, but the buyer can roll more of their closing costs into their loan vs. paying them out of pocket.

If the seller raises the sales price, the home will still have to appraise the new amount for the loan to come through. There are also limits and rules for seller paid closing cost amounts based on the type of loan you're using and size of your down payment.

At settlement, a reduction for the seller concession will be subtracted from the sales price and the cost (credit) will be moved over to the buyer's side of the settlement sheet to reduce the buyer's cash requirement.

No side deals or undisclosed concessions are allowed. The seller concession must be in writing, usually in the purchase contract or attached as an addendum.

Max seller concessions for FHA loans?

Federal Housing Authority (FHA) loans are backed by the federal government and conform to guidelines set by the Housing of Urban Development (HUD).

The FHA limits the seller assist (seller paid closing costs) to the lesser of:

• 6% of the sales price OR
• The total allowable closing costs, prepaid and escrow costs.

This means that if the total settlement costs add up to 5% of the sales price, only 5% is permitted to be paid by the seller on behalf of the home buyer — not 6% of the sales price.

Interested Party Contributions

The seller and/or third party may contribute up to 6% of whichever is less:

(A) The property’s sales price or

(B) The appraised value toward the buyer’s closing costs, prepaid expenses, discount points, and other financing concessions.

Contributions from Interested Parties (Manual):

• Interested parties are sellers, real estate brokers, builders, developers, or other parties having a stake in the transaction.
• A payment made by an interested party, or a group of parties, toward the Borrower's origination fees, other closing expenses, and discount points is referred to as an "Interested Party Contribution."
• Standard Interested Parties are permitted to contribute up to 6% of the sales price toward the Borrower's origination fees, other closing expenses, and discount points.

The 6-percentage-point restriction also includes:

• Interested party payments for permanent and temporary interest rate reductions, as well as other payment supplements; mortgage interest payments on fixed-rate mortgages.
• Mortgage payment protection insurance, as well as payment of the UFMIP
• Incentives to buy are Interested Party Contributions that exceed real origination fees, additional closing expenses, and discount points.

Contributions from interested parties that surpass 6% are considered an incentive to buy and not allowed.

Max seller concessions for conventional loans

Conventional mortgages are home loans not backed by the federal government. Instead, they conform to the underwriting guidelines of Fannie Made and Freddie Mac.

The Fannie and Freddie guidelines permit the seller to put up to 3% of the sale price toward the buyer's closing costs if the down payment is less than 10%.

Sellers can cover up to 6% of the sale price for down payments between 10–24%. And sellers can pay up to 9% of the sales price for down payments of 25% or higher.

VA seller concession limits

The Department of Veteran's Affairs (VA) allows sellers to put up to 4% of the home's sale price toward the buyer's closing cost if they're financing with a VA-backed loan.

There are no limits on what type of closing cost sellers can contribute towards. The assistance simply can't exceed that 4% limit.

One difference between VA loan seller assist limits and other types of mortgages is that any closing costs that are normally covered by the seller in your market don't count towards the 4% limit. So if local convention stipulates sellers cover the escrow or title fees, those costs wouldn't count as "concessions" in the eyes of the VA.

How does the VA define seller concessions?

As defined by the Department of Veteran Affairs, as of November 8, 2010:

For the purposes of this discussion, a seller's concession is anything of value added to the transaction by the builder or seller for which the buyer pays no additional cost and for which the seller is not normally expected or obligated to pay or provide.

Seller concessions include, but are not limited to:

• Payment of the VA funding fee for the buyer
• Payment of the buyer's property taxes and insurance in advance
• A television set or a microwave oven are examples of suitable presents.
• Payment of bonus points in order to get permanent interest rate reductions
• Supply of escrowed money to offer short-term interest rate reductions, and
• Repayment of credit amounts or judgments on the buyer's behalf

The Issue: In certain areas, builders or sellers provide concessions as a competitive advantage. In extreme instances, the incentives may lure unsuspecting and unprepared veterans into taking out mortgages they cannot pay. The concessions may mask the veteran's inability to get the loan.

The Four Percentage Limit: Any seller concession or combination of concessions that exceed 4%t of the property's established fair worth is deemed excessive and unsuitable for VA-guaranteed loans.

When calculating whether concessions exceed the 4% limit, exclude regular discount points and payment of the buyer's closing expenses from total concessions.

USDA max seller concessions

The United States Department of Agriculture (USDA) does not technically impose a limit on the seller-paid closing costs for USDA loans. But many lenders will unilaterally limit the seller assist to 6%.

Consult with a mortgage professional concerning limits and allowable costs paid under these mortgage programs. The seller assist cannot be used to pay the down payment . . . only closing, escrow, and prepaid costs.

I wanted the seller to pay 6%, but at closing the seller only paid 5%...

It can happen. The seller is only permitted to pay your closing and prepaid expenses UP TO THE LIMIT PERMITTED BY THE LOAN PROGRAM OR THE TOTAL OF THE CLOSING AND PREPAID COST - WHICHEVER IS LESS.

FAQ about seller assists

Should I ask the seller to cover my closing costs or lower my purchase offer?

Asking a seller to contribute toward your closing and prepaid costs will lower the amount of cash you have to pay at the closing table (which can help you afford the home). But it will likely cost you more in the long run, because your loan payments will be higher.

The following example assumes that the house is listed at $100,000 and the seller desires to "net" — sell the house — for $94,000. This example also assumes that the real estate taxes are $3,600 per year, and the homeowner's insurance is $480 per year.

Column 1: Sales price of $100,000 with a 6% seller assist ($6,000) — FHA mortgage
Column 2: Sales price of $94,000 no seller assist — FHA mortgage

As you can see, your total cash due at closing to purchase this home is less in Column 1, because the seller is paying $6,000 (6% X sales price) toward your closing costs. But the monthly payment is higher than in column 2, because the mortgage amount is higher.

Here's the bottom line:

• A higher sales price with a seller assist will lower your out-of-pocket closing costs, but result in a higher monthly payment.
• A lower sales price with no seller assist will increase your cash requirement at closing but lower your monthly payment.

If you make a full-price offer with the seller paying 6% toward your closing and prepaid costs, your cash requirement will be lower. But since the offer is for full price, your monthly payment will be higher than an offer at a lower sales price and no seller assist.

The mathematics are the same with VA, USDA, and conventional loans, regardless of which state you are purchasing in.