Seller Assistance
One of the biggest obstacles many home buyers face is the ability to fund closing costs. Closing costs typically account for approximately 5% to 6% of the price of the home. With a minimum down payment of 3.5%, using FHA guidelines as an example, a buyer of a $100,000 home must have funds of approximately $9,500 – a down payment of $3,500 and approximate closing costs of $6,000 order to seal the deal.
Along comes was is known as a seller assist, also known as seller concessions. A seller assist is a feature of many loan programs that is used to help a buyer pay for a portion of their closing costs. It becomes a debit to the seller and a credit to the buyer at the closing table.
Each loan type has it’s own specific guidelines as to how much assistance from the seller is allowed:
A seller assist is usually requested as part of the original contract offer, but it is common to see seller concessions requested or increased during home inspection negotiations to cover repair costs. The amount of the assist can not exceed the allowable closing costs as determined by the lender. If the case arises where allowable closing costs are less than the negotiated assist amount the seller pockets the difference.
A seller assist is a great feature that allows the seller to pay some or all of your eligible closing costs. In a market where sellers find it difficult to sell their home, a seller assist can be an attractive lure to a prospective buyer.
Let’s use an example of a purchase price of $200,000 and a 6% seller assist with a FHA loan. The sale price of the home will be recorded as $212,000 and the seller will credit the buyer 6%, $12,000, at the settlement table. Thus the sellers net proceeds will be $200,000. The buyer finances the assist amount by adding it to the mortgage loan. Yes it will cost the buyer a bit extra each month to finance the assist amount over the life of the loan, but an assist is often the only way the buyer can purchase the property.
If a seller assist is part of the transaction the total purchase price, including the seller assist, must have enough value to justify the sale price. The price of the home must appraise with the seller assist included. In the past it was common practice to add the assist to the price of the home and “bump up” the sale price to cover the assist, but that practice now can raise a red flag during the appraisal process.
A seller assist can also be utilized to purchase mortgage discount points. This is where the seller assist is used to buy down the interest rate. This is useful for many first time home buyers because the lower rate helps reduce their monthly mortgage payment and allows them to stretch their buying power.