Updated: Feb 26, 2022
There’s no getting around the fact that you need a lot of upfront money to buy a home. Fortunately buyers who are short on funds may get a little help at the closing table in the form of a seller’s assist.
If you’re currently in the home buying or selling process, you may have come across the term seller’s assist. You know it can be part of certain mortgage plans, but maybe you aren’t exactly sure what it involves.
Seller assist involves a seller’s assisting a buyer with his or her closing costs or other expenses. Although it might seem like a seller’s assist benefits only the buyer, there are also benefits for the seller.
What is a seller’s assist?
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A seller’s assist — sometimes known as a seller concession — involves the seller providing a credit used to pay the buyer’s closing costs. This credit can also reduce the buyer’s interest rate, or pay the first month’s mortgage payment. It can also pay escrow and title fees, property taxes, or additional inspections for older homes.
Many prospective home buyers budget for their down payment, but forget how much closing costs can be. If you know you can afford the down payment and monthly payments, but don’t have enough money for closing costs, you can ask for a seller’s assist. However, the seller’s assist is voluntary: the seller doesn’t have to accept the concession.
How Seller Assist Works
Seller assists work by reducing the amount that you have to pay for the home upfront. However, this is not free money. Often, sellers will make up for the concession by building it into the sale price, which allows you to finance the cost. If you’re using a seller’s assist to offset a higher purchase price and lower your upfront costs, you’re basically rolling your costs into your loan.
There are also limits on how much the seller can assist you. Each type of loan has its own set of rules regarding seller concessions. Not all loans qualify for seller’s assistance. For those that do qualify, there are limits to how much a buyer can ask for in a seller’s assist.
The maximum amount for U.S. Federal Housing Administration (FHA) loans, and conventional home loans with at least 10% down, is 6%. The maximum amount for investor loans is 2%. The maximum seller’s assist for conventional home loans between 3% and 9%, is 3%.
Why would a seller help you pay?
At first glance, you might think a seller’s assist only helps the buyer, as they’re the ones that get a credit at closing. However, a seller’s assist does have benefits for sellers. There are a few scenarios in which agreeing to concessions might make financial sense for a seller.
Maybe they want to close the sale quickly because they’re buying another house and don’t want two mortgages. Or maybe the house has been on the market for a while and there’ve been no good offers. If the seller is eager to get rid of the house, they could be more open to helping with your closing costs.
Seller assist can also be used to attract potential home buyers. Another benefit is that a seller’s assist doesn’t actually cost the seller anything, since it’s factored into the purchase price at closing.
Most times, a seller will help you out if your offer is at or above the listing price. This way, the seller’s closing costs are close to what they’re asking but you don’t have to bring any cash to closing.
However, if you offer above list price and ask for seller’s assist, your appraisal must come in higher than the list price. It’s also wise to have a prequalification letter from your lender so the seller can be comfortable with the concession.
Advantages And Disadvantages Of Seller’s Assist
Be sure to take a complete look at your costs and understand if the housing market in your area is a buyer’s market or a seller’s market.
In a buyer’s market, sellers have trouble selling houses because of high inventory or low demand. Under these conditions, you, the buyer, have the power. A seller is more inclined to accept your offer if they’re not sure they’ll get a better one.
However, in a seller’s market with high demand or low inventory, the seller holds the power. If you’re in a seller’s market, you could risk having your offer declined if you try to attach any concessions to it. That’s because the seller may have other offers with fewer concessions or contingencies.
Advantages to seller’s assist:
Your out-of-pocket closing costs could be lowered.
You could make a higher offer while having more manageable closing costs.
Disadvantages to seller’s assist:
You could end up paying more over the life of the loan with concessions than without.
If you’re in a competitive market, you could risk having your offer declined by attaching concessions.
It’s tricky to determine whether it’s worth it to ask for seller concessions. Working with an experienced real estate agent who knows the local market can help you get the best deal.
What are the tax implications?
Since every case is different, you should discuss your concerns with a tax advisor who can give advice based on your individual situation. Having a seller pay concessions won’t have any major tax implications and may even be eligible for a few deductions.
The Internal Revenue Service (IRS) has rules dictating how homeowners and recent home buyers are taxed and what deductions they’re given. Most closing costs aren’t eligible for tax deductions, regardless of whether you or the seller pays for them. Currently, the IRS only allows closing costs deductions on home mortgage interest and certain real estate taxes.
However, the mortgage interest tax deduction includes mortgage discount points — money paid at closing to get a reduced interest rate. So if your seller offers concessions as mortgage discount points, you’ll be able to deduct those points.
A tax professional can go over these guidelines with you and help you steer through buying a home and taking on a mortgage, both of which come with their own sets of tax deductions.
If you’re looking to buy a home and considering a seller’s assist, UpNest can match you with a top Realtor who knows the market and can help you navigate the home buying process. Our loan division can also help you with financing through our affordable mortgage packages.