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If you have been looking for a new home or if you recently put your home on the market, you may have heard the phrase sellers assist. Although you may have heard the phrase, if you’re like most people, you probably don’t fully understand how it works. We’ll shed some light on the seller’s assist in this article and address some frequently asked questions about how it works.
Sellers assistance is offered by a seller to the buyer as a way to help pay closing costs. With this assistance, money becomes available for other things associated with acquiring a new home. Such as paying the first mortgage payment, paying down the loan’s interest rate, or saving up to pay for the property taxes.
Buyers tend to ignore the home’s closing costs and focus on setting a budget so that there’s money for the down payment and other things. On the contrary, closing costs should be factored in as well since they make up a significant portion of expenses necessary to finalize the sale.
Buyers can ask the seller for help with covering the closing costs by way of seller assist. The seller can then step in and provide the buyer with whatever is needed. Usually, first-time buyers come up short financially at closing because they don’t know what to expect in terms of closing costs. As a result, they fail to budget enough money to cover the additional fees.
Sellers assist reduces the upfront fee buyers have to pay at closing. Actual money is not exchanged–buyers typically receive the benefit in the form of a lowered sales price, which is financed through a home loan. In other words, if you are getting assistance from the seller to offset your closing costs and they, in turn, reduce the sales price instead, you will be shifting the expenses into the loan.
There is a limit to how much a seller can give the buyer. With a 10% down payment, the seller’s assistance for conventional and U.S Federal Housing Administration (FHA) loans can’t exceed 6% of the loan amount. It should be noted that all loans don’t allow sellers to assist. In addition, in some cases, a buyer can ask for seller assistance up to a specific limit.
At first, you might think that the seller’s assistance only benefits the buyer. But, in reality, it helps both seller and buyer. One of those benefits is that the seller may want to sell the house as soon as possible because they may be buying another home using the sales profit.
Another benefit could be that the home has been on the market for a long time, and the buyer hasn’t received any tempting offers. The offer of seller assist can attract more potential buyers to your house. The seller will be more open to helping the buyer in any way possible just to finalize the sale.
In addition to this, the seller’s assistance does not cost the seller anything because it is ultimately included in the purchase price at closing. In most cases, a seller will help a potential buyer if the offer made exceeds the listing price. To make the seller more comfortable with providing assistance, buyers are usually advised to get a prequalification mortgage letter from a lender.
When buying a house, you must keep some things under consideration. Evaluate the area in which you want to purchase a house and research whether the real estate market is a seller’s market or a buyer’s market.
In a seller’s market, the demand is usually high and the inventory is low. So, in that case, the seller holds the power, and if you ask for seller concessions you run the risk of having your offer declined because the seller will have other offers (often higher offers without requested assistance) from which to choose.
In a buyer’s market, the buyer holds the power, and the seller will be more inclined to accept any offer, even if it includes a request for seller assistance because sellers are having trouble selling their houses due to a saturated housing market.
It is not always easy to determine whether or not the seller’s assistance will be beneficial for you as the buyer. Make sure you find an experienced real estate agent who knows the local real estate market trend. He or she can advise you on whether or not to pursue seller assistance.
These terms are not interchangeable, although you may hear them used as such. A seller concession provides short-term relief for the buyer at closing. But the buyer ultimately still has to pay the closing costs. On the other hand, a price reduction lowers the closing costs and buyers don’t have to pay them.
The Internal Revenue Service (IRS) has rules that govern how buyers and homeowners will be taxed and which deductions are allowed. Closing costs don’t qualify as a tax deduction – either you pay them or the seller pays them. The IRS has modified its criteria so that the tax deduction is applied only to certain real estate taxes and to mortgage interest. If the seller offers a concession as a mortgage discount price, the buyer will be able to deduct those points.
Every case is different, so consult with an experienced tax advisor for more information.
Conventional mortgages and FHA loans allow sellers to pay a percentage of the buyer’s closing costs. However, the seller is not obligated to do so.
No, the seller’s assist cannot be used for the down payment. Use of funds is limited only to closing costs, which can include homeowner’s insurance, escrow, and per diem interest. FHA and conventional loans allow the seller to pay a down payment as a “gift.”
Mortgage rules state that seller assistance cannot exceed total closing costs, which means there can be no cash back.
The amount of permissible seller assist should be included in the sales contract. If closing costs are less than anticipated and there is money leftover, the seller can keep the difference.
Seller assist is beneficial and effective for both the seller and the buyer. It helps the buyer purchase a house even if he or she doesn’t have enough money in their budget to pay the closing costs. On the other hand, seller assist expands the pool of potential buyers to include those who may not have otherwise made an offer because they would need help paying closing costs. So, we can say that seller’s assist is effective and beneficial for both parties.
Seller Assist is undoubtedly an excellent idea, but it is not ideal for every situation. Some alternatives are listed below:
If you are a first-time homebuyer, look for state-sponsored first-time buyers grants. These grants are valuable whether you need funds for your closing costs or for the down payment.
An FHA loan is an especially good option for first-time homebuyers. FHA loans allow the buyer to borrow a percentage of the home’s value in advance. However, to get this advantage, buyers need to have good credit scores. Through FHA loans, seller assist money comes from a certified lender and not from the seller.
The above discussion outlined how seller assist can help buyers with closing costs. Seller assist is equally beneficial for both the seller and the buyer. The buyer who is unable to pay some or all of the closing costs will benefit from seller assist. And it is also helpful for sellers who want to expand the pool of potential buyers for their house.