When buying a home, you may come across the term "seller concessions." But what exactly are they, and how can they help you buy down your home's interest rate?

Seller concessions refer to any financial contribution made by the seller to help the buyer with the costs associated with purchasing the home. These concessions can be in the form of paying closing costs, providing a credit towards home repairs, or even paying some of the buyer's mortgage interest.

One of the ways that seller concessions can be used is to buy down the interest rate on the buyer's mortgage. This means that the seller contributes a certain amount of money that is used to lower the interest rate on the buyer's loan. In return, the buyer will end up paying a lower interest rate over the life of the loan, which can result in significant savings.

Let’s say that the interest rate on a 30-year fixed rate mortgage is 6%. If the seller contributes $12,000 in concessions, the lender may be able to lower the interest rate to 5%. Over the life of the loan, this could result in a savings of thousands of dollars in interest payments.

Keep in mind that not all lenders will allow seller concessions to be used to buy down the interest rate. If they do, the maximum amount of the concession will vary depending on the loan program, the type of the home, the amount of the loan, and the lender's policies.

For most loan programs, such as FHA and VA loans, the maximum amount of seller concession is set by the government agency that insures the loan. For FHA loans, the maximum amount of seller concession is 6% of the purchase price of the property, while for VA loans, the maximum is 4%. On the other hand, conventional loans, which are not insured by the government, have no set maximum amount of seller concession. However, most lenders have their own policies that determine the maximum amount of seller concession they will allow. This amount can range from 3% to 9% of the purchase price, depending on the lender.

Seller concessions can be a valuable tool for homebuyers looking to lower their mortgage interest rate. While the process may vary, it's worth exploring if it's an option for your home purchase. By using seller concessions to buy down the interest rate, you may be able to save money over the life of the loan and make your monthly mortgage payments more affordable.

Have more questions about buying? Check out our free Buyer’s Guide for a clear breakdown.