Real Estate Agent · Philadelphia, PA · Member since 2019 · 1k+ posts · 1k+ votes
Whether you are new to investing or are seasoned, utilizing sellers assist is an excellent way to leave more money in your pocket without much effect on your mortgage.
For example:
You are buying a home for $400,000. Instead of buying it at that price, ask the seller to increase the price to $410,000 and offer a $10k assist at closing.
The seller gets the same net price at closing, and you pay 10k less at closing. Win-win
Increasing your purchase price by 10k really only changes your mortgage by $50/m and approximately 500-1000 extra at closing (depends on your state fees, transfer taxes, etc)
So really you are saving $10k today for 50/m and about 750 at closing.
If you do the math, it would take you about 15.5 years to pay that 10k you put towards your loan.
The 10k you have in your pocket today is worth way more than the 10k 15.5 years from now. Use that money to renovate, or as a portion of a down payment for the next property. Leveraging sellers assist saves you tons of money, and gives you a great ROI.
Personally I have purchased 7 properties and saved 50k in sellers assist. I used this money towards renovation and other properties
The best part, it’s TAX FREE. That means the 10k you save is 10k.
If you’re an agent buying for yourself, make the tax free income, not the commission (approval from broker required)
***Property has to appraise for the higher value***
@Alan Asriants I encourage clients to leverage this whenever possible. It makes so much sense for all the reasons you outlined. I'd rather have the cash now!
I agree it's a great strategy. That said, there are some problems that can arise.
1. The property has to appraise for that higher value. Especially in markets that are still growing and competitive, this may not be an option. If you ask for it up front and the property DOESN'T appraise for the contract value, then the seller's first response is to lower the price but take away those closing costs. And if you're counting on the appraisal to be higher, and it doesn't, are you now in trouble? Don't count on it, but definitely worth a try!
2. There are limits to what a seller can contribute to your purchase. For example, they can't pay your down payment. It can only be used for closing costs. Also, it depends on how much you put in a down payment as to how much you can get in contributions. If you're buying an investment property, 2% of the purchase price is max, no matter what. Owner occupied loans, <5% downpayment, 3% is the max. 5-10%, 6% is the max, etc. Definitely check with your lender that they can use whatever you're negotiating so you aren't left with too much money and no where to put it.
3. Asking for it up front can make repair requests challenging (at least in NC and depending on the situation). Most sellers want to give a credit at closing rather than repair the home. If you already have closing costs negotiated up front, you may not be able to that, and then the seller simply doesn't do anything.
On the pro side, you can use those seller closing costs contributions to do interest rate buy down programs as well (owner occupied only I believe). You can only use seller funds for those 3-2-1, 2-1, 1-0 buy down programs.
At the end of the day, it is definitely a great strategy to keep more money in your pocket and/or save you money in the first few years on interest. Make sure you talk to your Realtor about the pros/cons and how to best move forward!
The Assumable Guy544 Reviews