Any real estate transaction involves closing costs, sometimes referred to as settlement charges.
In addition to the required 3.5% FHA down payment requirement for an FHA home purchase, closing costs will add to the bottom line amount of money you will need to bring to closing on your transaction. Depending on the state you are in and the sales price of the home, closing costs can range from 2-4% of the sales price or higher in some cases!
The good news, however, is that FHA allows for the seller to pay your closing costs for you, up to 6% of the sales price, enabling you to come to closing with only your 3.5% down payment. This is commonly referred to as FHA Seller Concessions. The maximum percentage may decrease soon to 3%!
"Why in the world would a seller want to do that?" You may ask.
The reason is, that typically in this type of scenario, the seller will demand a higher price on the home for the cash they are coughing up to pay your closing costs. That way, they will still net the amount they were looking for from the sale.
An example might help clarify:
Sale without concessions:
Sales Price
Seller concessions
Net to seller = | $100,000
($0)
$100,000 |
| Sale with concessions:
Sales Price
Seller Concessions
Net to seller = | $103,000
($3000)
$100,000 |
|
Both scenarios net the seller the same amount. The only caveat is that the home must appraise for the sales price.
If you have more questions about FHA seller concessions or other FHA home purchase or refinance questions, please contact us and talk to one of our FHA experts.
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