Seller Concessions vs a Price Cut: What Florida Buyers Should Ask For

By Travis Penny, Senior Mortgage Broker, NMLS 1649161.

Florida has more homes sitting on the market than it did a couple of years ago, especially condos and homes in Southwest Florida. That gives buyers room to negotiate. The question I get most is whether to ask for a lower price or for the seller to pay something. Here is how the two compare, with simple numbers and no rates.

The same $15,000, two ways

Say you're buying a $400,000 home with 10% down.

Price cut to $385,000. Your down payment drops by $1,500 and your loan drops by $13,500. Your monthly payment goes down a little, and your property taxes are figured on a slightly lower price. Your closing costs are about the same.

$15,000 seller concession at $400,000. Your down payment and loan stay the same. The $15,000 pays your closing costs and prepaids, or funds a temporary buydown. You bring far less cash to closing, and with a buydown, your first two years of payments drop by much more than the price cut would.

The price cut is a small saving over many years. The concession is a big saving now.

When a price cut wins

• You have plenty of cash for closing and reserves.
• You plan to stay in the home for many years and won't refinance.
• The home is a condo or in a building where a lower price helps the appraisal or the association's review.

When concessions win

• Cash to close is tight, or you'd rather keep cash for hurricane shutters, furniture or reserves.
• You want lower payments early on. A seller funded 2-1 buydown lowers years one and two.
• You expect to refinance later anyway.
• You're buying a new home before your old one sells and want to soften the overlap months. See buying a house before selling in Florida.

Seller contribution limits by loan type

• Conventional, primary home: 3% with under 10% down, 6% with 10% to 25% down, 9% with more than 25% down.
• FHA: up to 6%.
• VA: up to 4% in concessions, with normal closing costs not counted against that limit.
• Non-QM: on the programs I have access to, up to 6% up to 90% loan to value, and jumbo and agency loans can carry a temporary buydown too.

Concessions can only cover real costs: closing costs, prepaids and buydowns. They can't come back to you as cash.

How to ask

Write the credit into your offer as a set dollar amount "toward buyer's closing costs, prepaids and/or rate buydown." That wording gives me room to use every dollar. Before you send the offer, I'll tell you the most your loan can use, so you don't leave money on the table or ask for more than you can take.

FAQ

Is it better to ask for seller concessions or a lower price?

If cash to close is tight or you want a lower payment in the first years, concessions usually help more. If you have plenty of cash and plan to stay a long time, a price cut lowers what you owe for good.

How much can a seller contribute in Florida?

It depends on the loan, not the state. Conventional allows 3% to 9% on a primary home depending on your down payment, FHA allows up to 6%, and VA allows up to 4% in concessions. On Non-QM programs I have access to, up to 6% up to 90% loan to value.

Can seller concessions pay for a 2-1 buydown?

Yes. A seller credit can fund a temporary buydown that lowers your payment in years one and two.

Do seller concessions affect the appraisal?

The home still has to appraise at the contract price. Concessions are disclosed to the appraiser and lender, and they can't exceed your actual closing costs and prepaids.

What happens if the concession is more than my closing costs?

The excess usually can't be paid to you in cash. I size the credit to what your loan can use, or point the extra toward a buydown.

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Before you write the offer, send me the price and your down payment and I'll tell you exactly how much credit to ask for. Start your application, or reach me through my contact page. For the permanent vs temporary buydown choice, see seller paid rate buydowns.

Travis Penny, Senior Mortgage Broker, NMLS 1649161 | Vision Mortgage, NMLS 1286953 | Residential loans in Maine and Florida.