Unable to understand…please explain

[Jenny Ng]

Hi, please explain the information at the end of the post to me as I cannot sleep thinking about it. My lender is not returning work for a few more days so I wanted to ask this group about seller concession on a conventional loan (Freddie Mac) through Chase.

The sale price on the contract is 400K but the seller agreed to give me a 36K seller concession and pay the 1% (4K) flip tax, bringing my purchase price to 360K.

I have to put down 10% (40K) deposit when I sign and I plan to put a minimum of 30% down payment.

I have an unsigned contract with a contingency that I will walk away from the sale if I do not get the 36K seller concession and 1% flip tax paid by the seller.

I would appreciate it if you can explain what the bank is saying below. Thank you.

Bank:

As you noted, the Agency maximum allowable interested party contribution is limited to 9% (or $36,000) based on an LTV < 75% and a $400,000 purchase price.

The additional 1% being paid by the Seller for the customer's flip tax would be considered a

Sales Concession since it exceeds the limitation. A Sales Concession is deducted from the PP when calculating the LTV, meaning that we would consider the PP to be $396,000 and the resultant LTV to be just slightly over 70%. Since this wouldn't have any negative impact as to the loan structure, it shouldn't cause a problem. (The customer's PP would still be $400,000 and the loan amount would not need to be changed)

[Michael Gussin]

So a sellers concession (capped at 9%) and a discount off price are different. A concession is where the seller will pay a portion of the closing costs for you, which is great and minimizes the amount of out of pocket funds required.

A discount off price just lowers the sale price, which means you will have a lower loan amount and monthly payment, but won't effect your funds out of pocket much.

Any other questions don't hesitate to reach out!