A seller contribution is when the seller of a home puts up some or all of the money needed toward
the buyerâ€™s closing costs. Seller contributions can be negotiated at the time of a home purchase
by having the seller pay closing costs rather than a reduction of the home sales price.
Sometimes you can do a combination of both.
A lot of people are creditworthy of having a mortgage but they just donâ€™t have a lot of money in
the bank. In these cases, seller contributions can mean the difference between a sale and no
A Seller contribution is very easy to do. You simply disclose it to the lender. In most cases,
these contributions range from 3%-6% of the purchase price. Some 100% financing programs
now allow seller contributions up to 6%. It used to be capped at 3%.
Ever wonder how the homebuilder offers to make the buyerâ€™s payment for a year? They use the
seller contribution to make these payments out of escrow. If you buy a $300,000 home and the
builder is allowed a 3% contribution or $9,000 and your payment is $1,500 per month, there are
your six months in payments.
Sometimes seller-contributed closing costs can help the borrower get a better interest rate by
buying it down, making the home easier to qualify for.
Ever wonder how a homebuilder can offer 4.750% interest rates when the market is at 6.000%?
They use seller contributions to buy down rate. Figure that every .250% of rate buy-down costs
1% in points or a loan discount fee. If the rate today is 6.000% and you want to buy it down to
4.750% that would cost 5 points in discount fees. You still have 1% left over for closing costs.
Are you offering these marketing possibilities to your clients? You need to get with your preferred
lender to find out how you, too, can compete with the builders. Donâ€™t just use seller contributions
to cover closing costs. You too can offer a home with a rate in the high 4.000â€™s%.
Here is the catch: The amount of seller contribution cannot exceed the actual amount of closing
costs and it CAN NEVER be given back as a cash incentive to the buyer.