Selecting Real Estate

When many people start looking for a new home, they wonder what they should choose and how much of an investment it will be. Although many people aren't quite sure about what their new home will look like, the fact of the matter is that there are many aspects to be mindful of when it comes to real estate. From paying attention to how much things cost to looking carefully at your options, it really pays to understand and apply a little wisdom before you break ground on a project. Check out these posts to find out great tips about real estate.

Can Sellers Fund Buyers Down Payments for Homes?

Real Estate Blog

One of the most challenging aspects of buying a home is coming up with the down payment. Sellers, hoping to make their homes more attractive to buyers, sometimes wonder if they can pay some or all the down payment required. Their ability to pay this depends on the type of loan the buyer is applying for. Here's more information about seller-funded down payments.

It's Possible with Conventional Loans

People applying for conventional loans can take advantage of seller-funded down payments, which can make getting the home a bit easier. Since it is against the law for sellers to give buyers money directly, however, obtaining the funds requires a bit of money shuffling between a seller, buyer, and third-party organization.

Specifically, the seller takes the money he or she wants to contribute to the buyer and gives it to either a non-profit organization or a commercial entity that provides down-payment assistance. The organization then turns the funds over to the bank where the buyer secured the mortgage. At no point does the buyer gain access to the funds, which keeps everyone from getting in trouble with the law.

While seller-funded down payments can help all parties involved successfully transfer ownership of a home, it's important to note that there may be some costs involved. For instance, it's common for third-party organizations to charge a fee for their involvement.

Additionally, the IRS is not fond of this scheme and has ruled that organizations who do seller-funded down payments do not qualify as charities and are not tax-exempt as a result. Thus, it's important to work with a reputable company to avoid any legal or tax complications that might arise from this transaction.

It's a No Go with FHA Loans

Unfortunately, those applying for FHA loans are barred from accepting seller-funded down payments. The HUD handbook specifically states that none of the interested parties involved in the sale of the home can contribute to the buyer's minimum required investment (MRI). According to HUD, interested parties means sellers, real estate agents, builders, and anyone else who stands to benefit from the sale.

The only approved sources of down payment funds for an FHA loan are:

  • The buyers own savings
  • Money from retirement accounts
  • Sales of stocks and bonds
  • Gifts from approved donors (e.g. friends, family members)
  • Private savings clubs

Buyers could use funds from down payment assistance programs, but the program would have to be run by an approved and recognized agency, such as the state government or a well-known charity. It's best to contact the FHA for more information about this issue.

Even if you're not able to offer down-payment assistance, there are other ways you can make it easier for buyers to purchase your home. Contact a real estate agent for more information.


6 March 2020