By John Figard: Senior Blog Contributor NowICanOwn
Hi everyone and welcome to my blog! Today I'm going to talk about a topic that many home buyers and sellers are interested in: seller help towards closing costs. What does it mean, how does it work, and what are the benefits and drawbacks of this option? Let's find out!
Closing costs are the fees and expenses that you have to pay when you finalize a home purchase. They can include things like appraisal fees, title insurance, escrow fees, recording fees, and more. Depending on the location and the type of loan, closing costs can range from 2% to 6% of the purchase price. That means if you buy a $300,000 home, you could end up paying anywhere from $6,000 to $18,000 in closing costs!
That's a lot of money, right? And if you're a buyer who has saved up for a down payment, you might not have enough left to cover the closing costs. Or maybe you want to keep some cash reserves for emergencies or renovations. Either way, you might be looking for ways to reduce your closing costs or get some help with them.
That's where seller help comes in. Seller help is when the seller agrees to pay some or all of the buyer's closing costs. This is also known as seller concessions or seller contributions. The seller can offer this as an incentive to attract buyers or to close the deal faster. The buyer can also ask for seller help as part of the negotiation process.
Seller help can be a win-win situation for both parties. The buyer gets to save money and lower their upfront costs. The seller gets to sell their home faster and make it more appealing to buyers. However, there are also some limitations and drawbacks to consider.
First of all, seller help is not allowed in all situations. Some loan programs have limits on how much seller help the buyer can receive. For example, conventional loans allow up to 3% of the purchase price for seller help if the buyer puts down less than 10%, and up to 6% if the buyer puts down more than 10%. FHA loans allow up to 6% of the purchase price for seller help regardless of the down payment. VA loans allow up to 4% of the purchase price for seller help plus some additional expenses. USDA loans allow up to 6% of the appraised value for seller help.
Secondly, seller help can affect the appraisal value of the home. The appraiser will take into account the seller help when determining the fair market value of the home. If the seller help is too high, it could make the home appear overpriced and cause the appraisal to come in low. This could jeopardize the loan approval or require the buyer to bring more money to the table.
Thirdly, seller help can reduce the seller's net profit from the sale. The seller will have to pay more money out of their pocket to cover the buyer's closing costs. This means they will get less money at closing. The seller will also have to pay taxes on the amount of seller help they provide. Therefore, the seller should weigh the benefits of selling faster and easier against the costs of providing seller help.
As you can see, seller help towards closing costs is a complex and nuanced topic that requires careful consideration and negotiation. It can be a great option for both buyers and sellers in some situations, but it can also have some drawbacks and risks in others. If you're thinking about asking for or offering seller help, make sure you consult with your real estate agent and your lender to understand all the pros and cons and make an informed decision.
I hope you found this blog post helpful and informative. If you have any questions or comments about seller help towards closing costs, feel free to leave them below or contact me directly. I'd love to hear from you! And don't forget to subscribe to my blog for more tips and insights on buying and selling homes. Thanks for reading and happy house hunting!