Contributions by the seller, and other real estate entities are long past due for a new line of thought. Most real estate agents (along with their buyers and loan brokers, too) simply believe the only way to use seller contributions is for taking care of closing costs, which means most buyers are missing out on an awesome opportunity.
Many agents donít realize that contributions from the seller may be used in an array of ways that may increase the purchasing power of a buyer or help them decrease their payments each month.
In the scenario above, if a buyer who had a FICO score of 760 FICO along with a 5% down had decided upon a fixed rate 30-year conventional loan and mortgage insurance (MI) plus took a seller contribution for either buying down the rate of interest or for a once only fee for the MI premium paid up front at closing, their purchasing power would have increased by $50,000 while keeping an identical monthly payment.
Buying Down the Rate of Interest
In this example chart, the buyer decided to use seller contributions to buy the interest rate down to 4.75% while he gained $55,105 in additional purchasing power.
Paying Cash for the MI Premium
In the following example, the buyer uses seller contributions to pay cash for MI
premium as a once-only fee at closing time and gained $52,315 in additional
In this extremely competitive market with numerous limitations, itís crucial to
discover ways to set ones self apart. Being a knowledgeable buyer resources in
every aspect of the process of home-buying is important for success.
discussing the opportunities available for increased leverage using seller
contributions and suggesting that your buyers discuss the options with their
loan officer, can increase one's value, along with sales and referral activity.
In this example, the buyer opts to use the seller contribution to pay the MI
premium in cash as a one-time fee at closing and gains $52,315 in purchasing
There's an an interesting book called
Quick and Dirty Guide to FHA Mortgages.
With over 250,000 books in print, syndicated real estate columnist Peter G.
Miller really knows the FHA program. This handy guide takes a look at the FHA
mortgage program and appraisals, credit scores, down payments, flipping,
successful loan applications, reverse mortgages, buy-and-repair financing, Title
1 loans, insurance premiums, refunds, streamline refinancing, ďseller
contributionsĒ and much more.
Jan 6, 2012
Real Estate Finance