SELLER ASSISTANCE WITH DOWN PAYMENT

AND CLOSING COSTS

Why would a seller be willing to provide funds for your down payment and closing cost to you as a buyer?

For the same reason that the typical seller is willing to negotiate on the asking price for the house! Sellers want to sell and, in many cases, are willing to negotiate. And whether the seller accepts a price below the asking price or provides financial assistance to the buyer, either approach can help make the sale happen.

For you as a buyer, a lower purchase price really may not be of much help if you have a shortage of cash reserves. Consider this example.

EXAMPLE OF THE IMPACT OF A PRICE NEGOTIATION

Assume that you plan to purchase a home using an FHA mortgage to finance 97% of the purchase price. The home you select is priced at $150,000. What would you save if you negotiated with the seller to a purchase price of $140,000?

Asking Price of $150,000 Negotiated Price of $140,000

Down Payment Required = $4,500 Down Payment Required = $4,200

Est. Closing Costs = $4,300* Est. Closing Costs = $4,000

Cash Required (plus prepaids)= $8,800 Cash Required (plus prepaids)= $8,200

So, while the seller might make a $10,000 sacrifice, the cash you must have to complete the purchase was only reduced by $600.00!

*Actual closing costs will vary depending on a number of factors but your lender can provide an estimate tailored to your specific situation prior to your making a commitment. This estimate does not include amount to be collected to establish an initial escrow for homeowner and mortgage insurance.

Of course there is a benefit to you in purchasing at the lower price. Your monthly payment for principal and interest would be reduced by something in the range of $75 per month, depending on the interest rate on your mortgage.

These numbers show that, as a buyer, it will take you more than 10 years to actually receive the full benefit from the $10,000 price reduction, but only if you keep the home for that long!!

What if, instead, you paid the seller $150,000 but, as a concession to make the purchase possible, the seller paid 6% of the purchase price toward your down payment and closing costs? What a dramatic difference!

EXAMPLE OF THE IMPACT OF A DOWN PAYMENT AND CLOSING COST CONTRIBUTION NEGOTIATION

Purchase Price of $150,000 and Seller contribution of $9,000

Down Payment = $4,500

Est. Closing Costs/Pre-paids = $4,300

Less Seller Contribution =($9,000)

YOUR CASH REQUIRED = -$200 (could be applied to your pre-paids)

While your monthly payments will be higher under this higher purchase price, you will be able to close without having to empty your checking and savings accounts. Whether that is an advantage because it will allow you to have funds for other purchases or whether it is simply the only way you can afford to buy right now, it opens possibilities that you might wish to consider.

Talk to an ERA specialist about using this approach or click below to speak with a mortgage specialist about how this can work for you.