SELLER CAN’T GIFT FUNDS
An agent recently asked us if a seller could gift funds to a cash-strapped buyer to help the buyer get into the home. The answer unfortunately is no.
This is what sellers can do to help cash-strapped buyers.
1. Closing Cost Credits. Sellers can give credits up to 6% of the purchase price to cover both recurring and non-recurring closing costs. In hot markets, we rarely see seller credits but we have been seeing them pop up on occasion in recent months.
2. Gift of Equity. If the buyers and sellers are related, the sellers can gift “equity” in the property and that equity can constitute the entire down payment. I might add that lenders don’t rigidly verify how buyers and sellers are “related,” so there is a bit of flexibility here.
Other ways to help cash-strapped buyers:
3. Crediting Agent Commissions. Agents can credit their commissions to buyers for both closing costs and down payments in some cases. I am not suggesting that anyone give up their commission (and we never suggest this idea to buyers), but we have seen this done in order to salvage dying transactions.
4. Lender Credits. I’ve mentioned this several times in previous blogs but increasing the interest rate by 1/4 percent will usually generate a lender credit equal to about 1% of the loan amount.
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