One of the biggest obstacles many home buyers face is the ability to fund closing costs. Closing costs typically account for approximately 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. 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.
With a seller assist each lender and program has it’s own specific guidelines as to how much assistance from the seller the lender will allow. One lender may allow the seller to contribute 3% towards your closing costs, while another lender may allow 6% to be contributed from the seller. For example under current FHA guidelines, a seller assist of up to 6% is allowed. Your mortgage lender will advise you on the assist limits of your specific loan program.
A seller assist must be written into the original contract. Few lenders will allow that to be written in later, unless the selling price remains unchanged, and the seller is simply paying toward your closing costs out of that amount. If you need the seller to assist with closing costs, be sure it is a part of your discussion and planning from the beginning
A seller assist is a great feature that allows the seller to pay some of your 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 $100,000 and a 6% seller assist. The sale price of the home will be recorded as $100,000 and the seller will credit the buyer 6%, $6,000, at the settlement table. Thus the sellers net proceeds will be $94,000. Yes it is true that the buyer will be financing the additional $6,000 over the life of the loan, but the 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 assist, the property 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 today can cause unwanted issues with appraisers.
Another form of seller assist is a seller paid buy down. This is where the seller assists the buyer with a cash concession that is used to buy down your 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.
In our local market a seller assist was recorded in 48 out of 125 transactions in 2010, this translates to 38.4% of last year’s sales. Seller assist amounts ranged from $200 to $15,800, with an average assist of $5,241.
Wallingford PA Real Estate – Wallingford, PA 19086
