Real Estate ABC’s

One of the biggest obstacles many home buyers face is the ability to fund closing costs. Closing costs typically account for approximately 6% of the price of the home. With a minimum down payment of 3.5%, using FHA guidelines as an example, a buyer of a $100,000 home must have funds of approximately $9,500 – a down payment of $3,500 and approximate closing costs of $6,000 order to seal the deal.

Along comes was is known as a seller assist. A seller assist is a feature of many loan programs that is used to help a buyer pay for a portion of their closing costs.

With a seller assist each lender and program has it’s own specific guidelines as to how much assistance from the seller the lender will allow. One lender may allow the seller to contribute 3% towards your closing costs, while another lender may allow 6% to be contributed from the seller. For example under current FHA guidelines, a seller assist of up to 6% is allowed. Your mortgage lender will advise you on the assist limits of your specific loan program.

A seller assist must be written into the original contract. Few lenders will allow that to be written in later, unless the selling price remains unchanged, and the seller is simply paying toward your closing costs out of that amount. If you need the seller to assist with closing costs, be sure it is a part of your discussion and planning from the beginning

A seller assist is a great feature that allows the seller to pay some of your closing costs. In a market where sellers find it difficult to sell their home, a seller assist can be an attractive lure to a prospective buyer.

Let’s use an example of a purchase price of $100,000 and a 6% seller assist. The sale price of the home will be recorded as $100,000 and the seller will credit the buyer 6%, $6,000, at the settlement table. Thus the sellers net proceeds will be $94,000. Yes it is true that the buyer will be financing the additional $6,000 over the life of the loan, but the assist is often the only way the buyer can purchase the property.

If a seller assist is part of the transaction the total purchase price, including the assist, the property must have enough value to justify the sale price. The price of the home must appraise with the seller assist included. In the past it was common practice to add the assist to the price of the home and “bump up” the sale price to cover the assist, but that practice today can cause unwanted issues with appraisers.

Another form of seller assist is a seller paid buy down. This is where the seller assists the buyer with a cash concession that is used to buy down your interest rate. This is useful for many first time home buyers because the lower rate helps reduce their monthly mortgage payment and allows them to stretch their buying power.

In our local market a seller assist was recorded in 48 out of 125 transactions in 2010, this translates to 38.4% of last year’s sales. Seller assist amounts ranged from $200 to $15,800, with an average assist of $5,241.

Wallingford PA Real Estate – Wallingford, PA 19086

Real estate has it’s own terminology and acronyms. In this and future Real Estate ABC’s posts I will discuss some of the commonly used terms and vocabulary.

A short sale is a sale of real estate in which the sale proceeds fall “short” of the balance owed on the property’s mortgage loan. It often occurs when a borrower cannot pay the mortgage on their property, but the lender decides that selling the property at a moderate loss is better than the alternative – foreclosure. Both parties consent to the short sale process, because it allows them to avoid foreclosure, which involves hefty fees for the bank and poorer credit report outcomes for the borrowers. This agreement, however, does not necessarily release the borrower from the obligation to pay the remaining balance of the loan, known as the deficiency.

In a short sale, the bank or mortgage lender agrees to discount a loan balance because of an economic or financial hardship on the part of the borrower. The home owner sells the property for less than the outstanding balance of the loan, and turns over the proceeds of the sale to the lender. Neither side is “doing the other a favor;” a short sale is simply the most economical solution to a problem. Banks will incur a smaller financial loss than would result from foreclosure or continued non-payment, and borrowers are able to mitigate damage to their credit history. A short sale is typically faster and less expensive than a foreclosure. It does not extinguish the remaining balance unless settlement is clearly indicated on the acceptance of offer.

Short sales are different from foreclosures in that a foreclosure is forced by a lender, whereas both lender and borrower consent to a short sale. However, this consent may change at any time, and negotiations may be ongoing between the lender and borrower even while the short sale listing is on the market. The borrower may decide to remain and refinance their house, or become obstinate and force foreclosure. The bank may renege as well if they decide to stick with the current borrower, or if they disapprove of the sale price. A short sale contract includes a contingency where the bank must approve the sale – also know as 3rd party approval.

Multiple levels of approval and conditions are very common with short sales. Secondary mortgage lenders – as the result of home equity loans – will likely need to approve the terms of the sale as well. The possible wide array of parties to the sale can complicate the process and account for substantial delays in the sale.

Real Estate ABC’s – Seller Assist

Real Estate ABC’s – Short Sales

S. Clark Kendus