Using Seller Concessions To Reduce Loan Closing Costs
Seller concessions is a formal arrangement by which a home seller agrees to pay some, or all, of a buyer’s closing costs at the time of settlement.
Sometimes, seller concessions are referred to Interested Party Contributions (IPC), and sometimes they are referred to as Seller Contributions or a Seller Assist.
Each terms means the same thing — it is a reference to when the buyer’s closing costs are paid by a party other than the buyer. Such an arrangement is allowed on all major loan types, too, including conventional loans backed by Fannie Mae and Freddie Mac; FHA loans backed by the Federal Housing Administration; VA loans backed by the Department of Veterans Affairs; and, USDA loans backed the U.S. Department of Agriculture.
How Seller Concessions / IPCs Work
Here is how seller concessions work. First, a home buyer and home seller reach agreement on a sales price for a home. It could be any price, so long as there is agreement.
Then, the buyer and seller both agree to raise the sales price of home above its original level, with the seller agreeing to concede the entire raised amount toward the buyer’s closing costs at settlement.
Sometimes, seller concessions will cover all of a buyer’s cost. Other times, it will not. In no circumstance, however, may the amount of seller concessions exceed the amount of closing costs charged to the buyer. The buyer cannot use seller concessions to get cash back at closing, or for any other purpose than to pay for closing costs shown on a settlement statement. In addition, seller concession may not be used to compensate for home appliances or roofing in need of repairs; or, to make the buyer’s downpayment.