How Much Can I Ask for in Seller Concessions While Buying a Home in St. George?

One of the biggest hurdles for many of our buyers looking at homes for sale in St. George is covering the upfront costs. Closing costs, prepaid taxes, and other expenses can add up and become a major roadblock in the buying process.

This is where seller concessions come into play. But how much can you actually ask for in seller concessions? Understanding the 6% rule and the limits on concessions can help you make a strong offer while staying within lending guidelines.

What are Seller Concessions?

Seller concessions are negotiated costs that the seller agrees to pay on behalf of the buyer to help reduce the buyer’s out-of-pocket expenses at closing. A seller is often willing to offer this as a way to make the deal work for both parties, especially if they have a significant amount of equity to work with. Every deal is different, and there can be anything from zero seller concessions to a long list of them.

These concessions can include things like loan origination fees, appraisal costs, discount points to lower the interest rate, title insurance, and more. The funds from a sellers concession cannot be used as a part of your down payment, but they can be used toward closing costs. 

The 6% Rule: How Much Can a Buyer Ask For?

While it's true that seller concessions can be a massive and influential help in the buying process, there is a limit to how much a seller can contribute. Your lender will require you to receive under a certain threshold from the seller, as a way to limit their risk. 

Lenders set limits on seller concessions to prevent over-inflation of home values and to ensure buyers are financially stable enough to afford the mortgage. If seller concessions were unlimited, buyers might be able to purchase homes with little to no upfront investment, which could increase the risk of loan default.

The maximum amount a seller can contribute depends on the type of loan your are using and the size of your down payment. Most conventional loans follow the 6% rule, meaning that the seller can contribute up to 6% of the home’s purchase price toward closing costs—but only under certain conditions.

In general, you can expect these seller concession limits:

Conventional Loans

• Less than 10% down → Seller can contribute 3%
• 10% – 25% down → Seller can contribute 6%
• More than 25% down → Seller can contribute 9%

FHA Loans

Sellers can contribute up to 6% of the purchase price.

VA Loans

Sellers can contribute up to 4% of the purchase price toward closing costs, plus additional expenses like the VA funding fee.

USDA Loans

Sellers can contribute up to 6% of the purchase price.

Talk with your lender for the details about your unique scenario. Knowing the limits of your specific loan and down payment is essential for effective negotiations. 

Our Tips for Seller Concessions

Based on your needs, the information we have on the seller, and the unique market conditions when you are making an offer, we will provide our expertise to help you decide what to negotiate in the offer. In general, these are some of the key strategies:

• Ask for what you need, not the maximum. If your closing costs only total 4%, there’s no need to ask for 6%. An unrealistic ask might make your offer less competitive.
• Consider a slightly higher purchase price. In a seller’s market, offering to pay a bit more for the home in exchange for seller concessions can make your offer more appealing. Just remember that the home must appraise for the agreed-upon price.
• Work with an experienced real estate agent. We will help you determine how much room you have to negotiate based on the market conditions and the seller’s situation.
• Use concessions to lower your interest rate. If you don’t need all of the concessions for closing costs, consider using them to buy down your mortgage rate, which can save you significant money over time.

Ready to learn more about buying your new home in St. George? Contact us any time with your questions or to find out how we help our clients find their ideal property.