Seller Contribution

A seller contribution refers to a contribution made by a home seller towards the buyer’s down payment or closing costs.

The reason why these events happen, other than the seller being in a charitable mood, is to retain the transaction price at a certain level even though the seller will pay part of it.

This is opposed to the seller directly giving the buyer a discount off the asking price.

Maintaining the transaction price allows a buyer to obtain a higher loan amount from the lender as lenders grant loan according to loan to value.

For example, if a house is transacted at $200,000 and the borrower is able to obtain 80% LTV amounting to $160,000, should a seller give the buyer a 5% discount, the new transaction price becomes $190,000 resulting in a new loan amount of $152,000.

Should the purchase price be retained at $200,000 and the seller contributing 5% down payment, the borrower will still be able to obtain the original $160,000 loan amount.

A real estate investor well-versed in the ins and outs of seller financing can often utilize a lot of financial leverage in acquiring properties.