CASH POOR, GET MORE!
$12,000 DOLLARS! Did you know that in Pennsylvania the average closing cost run about 5% to 7% of the sale price… $12,000 for a $200,000 purchase!! Closing Costs are in addition to your down payment. Is it any wonder Buyers have a hard time getting a new home.
Fortunately there are several ways to structure your financing to secure additional cash from a Real Estate transaction.
SELLER ASSIST- The name is somewhat misleading. The seller does not pay out of pocket for the buyer’s closing cost. Here’s how it works. The home is priced at $200,000. The buyer will determine their net price they would pay for the home.
1. $200,000. The buyer would add the assist of $10,000 and make an offer of $210,000. $10,000 would be a credit to buyer.
2. $190,000. The buyer would add the assist of $10,000 and make an offer of $200,000. $10,000 would be a credit to the buyer.
This only works with a mortgage, the result is that the buyer increases their mortgage by $10,000 and essentially finances the seller assist. The seller simply is agreeing to a finance option for the buyer.
NOTE: the home must appraise for the Sale Price. In option 1 the sale price would be $210,000 and must appraise for $210,000. If you are competing with a strong buyer that does not need an assist the seller would accept their offer over yours not having to worry about the home appraising.
How Much Assist Can I Get? It varies based on the type of financing and can only be used towards allowable closing cost. If you have $8,200 in allowable cost then your assist would be capped at $8,200. Below are the basic Max assist percents generally allowed but like everything there are some caveats, so always check with a mortgage professional when structuring your financing.
- FHA= Max 6%
- USDA= Max 6% with zero down!
- 5% down= Max 3%
- >=10%= Max 6%
- Investor= Max 2%
LENDER ASSIST- Again the Lender is not just giving you money. Lender assist is more accurate to be called Premium Pricing. Basically if you select a higher rate the lender can credit the YSP (yield spread premium) toward your closing cost. For example taking a rate .25% higher might give you a 1 point (1% of loan) credit toward closing cost with only a minimal payment increase. More info: http://pafhamortgage.com/norstar-university/ysp-and-srp/
REALTOR ASSIST- The Realtor can also contribute. Let’s say that you need to sell an existing home. The Realtor may charge full or reduced commission on the sale of your home but because they benefit from multiple transactions they may be willing to discount or credit commission on your sale/purchase package. Many seller/buyers lose this advantage. A good example might be new construction. You went to the new construction sample home and put down a deposit and then called a Realtor to sell your home. If you tied the sale and purchase together with the same Realtor you could easily save 1% to 2 % and reduce your expense. More info: http://pafhamortgage.com/real-estate/buyer-agent/
These techniques can also be combined and can really be significant in reducing the cash needed to purchase a home.
By Bill Frantz www.PaFhaMortgage.com