Seller Concessions/credits at closing/max % of purchase price allowed for concession

[Emilio Attardo]

Hey BP, 

Scenario: I am Purchasing a home with a hard money loan. We went under contract with the following assumptions:

Purchase: $91,000

Rehab: $64,000

ARV: $215,000

ARV*0.75= $161,250

$161,250 - $64,000 - $91,000 = $6,250 left over to cover closing/holding costs. Not bad for my first BRRRR (or so I thought).

My lender was going to lend $132,250 which comes out to 75% of purchase and 100% of rehab, or ~60% Loan to ARV, and I would bring $22,750 + closing costs to the table.

We budgeted $10k for foundation repairs, but found out during due diligence that this would cost $35k.

We're currently waiting on the seller to sign an addendum to extend the inspection period so we can get a second opinion on the foundation repair. In the meantime, we've reached out to get competitive quotes for the foundation, and I've discussed my options with the lender.

Most likely, we are going to have to renegotiate with the seller. IF we confirm with another foundation repair company that the cost really is 35k to repair the foundation (or 25k higher than expected), the new numbers would look like this:

Purchase: 91k - 25k = $66,000

Rehab: 64k + 25k = $89,000

ARV: $215,000

Based on this, the project, in the lender's view, goes from "light rehab" to "heavy rehab" due to the ratio of purchase price to renovation cost approaching a ratio of 2:3 (or reno$ = 1.5*Purchase price). for a "heavy rehab", he's only able to lend 50% of the ARV, or $107,500. this would require me to bring almost 50k to the closing table. I'm simplifying some of the numbers, because my question is approaching and does not depend on exact figures in this example....

To "work around" this problem, I had the idea of approaching the seller for concessions, as opposed to reducing the purchase price. If the seller provided a concession to cover the increased cost of the foundation repair, the other aspects of the loan could remain the same. 

Purchase: $91,000

Rehab: $89,000

Seller Concession: $25,000

ARV: $215,000

My lender would still be lending $132,250 ($68,250 for the purchase price and $64,000 for the rehab), and we'd use the $25,000 in concessions to cover the balance of the rehab cost. This would be ideal based mostly on the fact that I would have to bring less cash to close. 

SO, my question: Is it possible to receive a 25k seller concession in this scenario? When I looked it up on line, all I could find was limits to concessions based on loan type and down payment. The articles I read discuss that limits to seller concessions are designed to prohibit inflation of the housing market, which makes sense, but it doesn't mention cash or hard money purchases. This would be a concession that's ~30% of the overall purchase price, which far exceeds the limits I read about online. 

Does anyone have any experience with negotiating seller concessions with a cash or hard money purchase? What would be the maximum seller concession in the scenario laid out in this post?

Thanks to everyone who reads and responds!

Best, 

Emilio