Money Back 
    At Closing
        Should you Ask for a      
           Seller Contribution? 
 
Buyers are often interested in asking the Seller for money back at the closing to limit the amount of cash that they have to come up with. Whenever you ask for money back at closing you will find the Sellers less willing to negotiate on price.  This only makes sense since what you are really asking the Seller to do is give you some money to help you buy their house.  This will reduce the net amount that the Seller takes away from the closing table.  In the Seller's mind they need to get a higher price for their home in order to "pay" you at closing and still make what they want from the sale.

Asking for a Seller's Contribution can make sense if you cannot come up with enough cash to cover your "closing costs", or you will need some money to make repairs to the property.  This option can be very important if your funds are limited.  You just need to understand what it means in the long run.  In reality you are paying your own closing costs either way.  If you are paying them at closing you can see the reduction in your checking account balance immediately.  If the "Seller pays the closing costs" you are adding them to your mortgage and paying interest on them over the term of your loan. 

Lenders often have specific rules as to what they allow Sellers to pay for and how much they can pay.  As an example, currently VHFA (Vermont Housing Finance Agency) restricts Seller contributions to 3% of the sales price for loans over 90% of the purchase price and 6% for loans less than 90%.  It is actually illegal for you to request the Seller give you money back at closing which is in excess of the property's appraised value.  This brings up another point concerning Seller Contributions.  The property must be appraised for however much more you are rolling into your mortgage in order for your lender to agree to give you the money.  In some cases this need can create problems.  It is a good idea to find out from your lender what restrictions they have concerning Seller contributions prior to the start of negotiations.

For more information on VHFA loans you can visit their website or contact a participating lender such as Anita Lotto of Mortgage Financial.  The VHFA website has a list of all participating lenders.

You should also realize that frequently by asking for a Seller Contribution you are making the real estate agencies involved in the transaction richer.  In most cases real estate commissions are calculated on the total contracted purchase price.  By paying the Seller more so that they can turn around and pay your closing costs, and the additional commission, you are increasing how much the agencies get paid.

You are also making your lender happy.  Obviously their business is to loan money.  The more they loan, the more money they make. 

Chicago Sun Times  "What the Consumer gets (with an exclusive buyer agent) is someone who is working for them"