by Marco Di Gabriele
Recently I’ve had a lot of first time home buyers who have asked for me to explain seller assist to them.
“What is seller assist?”
“Can a seller assist really help us save money?”
“How does a seller assist work?”
While seller assist is a pretty simple concept, most buyers don’t really understand it, mostly because no one ever took the time to explain it to them.
Before we talk about seller assist, it is important to understand closing costs.
Down Payment vs. Closing Costs
When closing on a property as a buyer, the money that you bring to the settlement table will either be money for your down payment, or money for closings costs.
The down payment is the equity that you will have in the house that you purchase.
If you put down 5% on a $200,000 home, you’re putting $10,000 of your money into the house as equity.
Don’t think of the downpayment as an expense, think of it like you are simply moving money from one bank account to another. Instead of holding that $10,000 in the bank, you’re just moving that money and investing it into your house.
Closing costs, on the other hand, include all of the costs associated with buying a home that are not the down payment.
Just to name a few of the closing costs you may be paying:
- Transfer tax (2.05% in Philadelphia)
- Title Insurance
- Mortgage Fees
- PMI (Private Mortgage Insurance) or MIP (Mortgage Insurance Premium)
- Taxes reimbursed to the seller
- Condo Fees
These are extra costs that you incur, as a buyer, that will increase the amount of money you need to bring to settlement on top of the down payment.
This is where seller assist comes in handy
A seller assist is essentially when the seller agrees to pay all or some of the buyers closing costs, so that they don't have to put out as much money up front to buy the house.
Typically, the way that this can work out for both the buyer & seller, is by offsetting the seller assist amount with an increase in the total purchase price.
For example:
Lets say you’re planning to purchase a home for $200,000.
For the sake of this example, the closing costs will be $6000.
If you want a $6000 seller assist, that would mean that the seller is paying $6000 out of the $200,000 that they are receiving to help you purchase the house
This means that they would only walk away with $194,000, which they may not be happy to do.
As an alternative, you would purchase the home for $206,000.
Now the seller will pay your $6000 closing costs, but still walk away with $200,000.
Your monthly mortgage payment will increase ever so slightly (approximately 16 extra dollars per month), because you are paying for that $6000 over the next 30 years (assuming that you’re getting a 30 year mortgage) instead of up front.
This works out for both you and the seller because you don’t have to bring an extra $6000 to close, and the seller still walks away with the $200,000 that he wanted.
Limits & Restrictions
Depending on the type of loan that you are obtaining to buy your home, limits on seller assist can vary.
Some loan programs don't allow seller assist at all, while others will allow for sellers to cover the entirety of the closing costs.
The best way to know for sure how much seller assist you are allowed to receive is by speaking with your lender.
