Seller Paid Closing Costs - Knowledge is Power

Seller Paid Closing Costs - Knowledge is Power
By Kristin Abouelata

If you haven't negotiated a bunch of home contracts, you may not be aware that you can ask the seller to pay a portion of your closing costs. Just how does that work?

When you're considering making an offer on a home, there are other ways to get a good deal other than just snagging the lowest price you can imagine. Most loan programs allow the seller to concede money toward the buyer's closing costs that would normally walk away with the seller in his pocket. Oftentimes, seller paid closing costs can make a home more affordable for you. You just have to make sure you stay within the allowable guidelines for the mortgage product you need.

You see, a lot depends on what type of loan you are getting. The scenarios I am going to discuss all pertain to if you are buying your primary residence, not an investment or second home. And the reason the amount that a seller can pay on your behalf varies from product to product is because different loan types have different documentation requirements, and therefore, different layering of risks. So, it's important to compare apples to apples. The less money out of your pocket invested into your home presents a higher risk for the lender, regardless of the source of the funds to close.

For instance, I had a loan the other day where the seller had agreed to pay up to 6% of the sales price in closing costs on behalf of the borrower. Totally reasonable since the borrower was getting an FHA loan. Unfortunately, the home wasn't up to FHA standards, and the loan had to switch to Conventional financing. Whoops. Conventional financing only allows for 3% seller concessions if one is putting less than 10% of the sales price down on the property. All of a sudden the negotiated contract wasn't working out to the benefit of the borrower quite as nicely. She actually would be paying more for the property than she need be without the same benefit to her unless she re-negotiated a lower sales price. Why is that? Well, originally the sales price was $100,000. The seller was giving her $6,000 toward closing costs and walking away with $94,000 in his pocket. Now, Conventional underwriting guidelines would only allow him to give the buyer $3,000. So his pockets would be a bit fuller unless the buyer renegotiated.

Different loan programs have different allowable amounts for seller concessions. For instance, VA loans allow the seller to pay 4% of closing costs, and Rural Housing loans have no limit on seller paid closing costs. Conventional loans will allow up to 6% seller paids, but the buyer has to put more than 10% money down on the property. And finally, FHA allows for 6% of sales price paid on behalf of the buyer toward closing costs.

Don't lose sight of the fact that seller paid closing costs usually don't count toward a buyer's minimum out of pocket investment required. For conventional and FHA, you usually have to come up with at least 3% of your own funds regardless of how much the seller is willing to help out. VA loans and Rural Home loans allow for 100% financing in most cases, so you're good to go there. And FHA will allow the seller to participate in a down payment assistance program and contribute toward your 3% investment, but that's a whole other article to write (and who knows if it will still be ok by the time this article makes it to print).

Your best rule of thumb is to work with a lender and realtor who know what they are doing. And if you have any doubts, your lender should be able to define your limitations for you pretty quickly. So, arm yourself with knowledge when negotiating your contract. It is always to your advantage to negotiate from a position of strength, and knowledge is power in this case.

Let My Experience Work For You!

Email your home loan financing questions to Kristin Abouelata, Home Loan Specialist with Mortgage Investors Group, at question@kristinmortgage.com or

call direct: (865) 567-0113
Toll Free: 1-800-489-8910.

For more information visit her website at http://www.kristinmortgage.com Home Loans Plain Talk.

Article Source: http://EzineArticles.com/?expert=Kristin_Abouelata
http://EzineArticles.com/?Seller-Paid-Closing-Costs---Knowledge-is-Power&id=1348975

Need Cash for a Home Closing? Consider a Gift

Coming up with a down payment or money for closing costs for a home loan can be a challenge these days. What extra money you were setting aside may all of sudden be going toward your gas tank or your grocery bill. To obtain your dream of homeownership, it may be time to accept that gift from Mom and Dad………

I saw a cartoon the other day that was pretty funny, but also pretty sad when you think about it. It showed a couple sitting across from a mortgage lender, and the caption read, “We’re here to apply for a tank of gas.” With increases in prices for just about everything, it gets more and more difficult to stash away a nest egg for a down payment. And pretty much every loan requires some part of down payment, even if you get a 100% financing loan. After all, you still are generally going to be required to put down some earnest money on your contract and in most cases, pay for an appraisal up front. You may have been trying to save it up on your own, but it may be time to accept some help from your family.

Most loan programs, be it Conventional, FHA, VA or Rural Housing, require the borrower to pay for something. In particular, FHA and Conventional home purchases want a minimum of 3% to come out of the borrower’s pocket. If you are doing a Conventional loan, you still can’t receive a gift for your 3% down payment, but you can use a gift to help with closing costs. However, FHA will allow your source of down payment to be a gift. So, if you find yourself a bit short on cash, you may need to ask someone to gift you the down payment or closing costs (or if your really lucky, and it’s allowed – both!).

All lenders are particular about just who can give you a gift for your down payment or closing costs. Pretty much across the board, the gift must be from a blood relative. You may have to prove that the gifter is a relative thru birth certificates, christening records, etc. Strange but true. Conventional loans will also allow an employer to give you a gift. But in any case, the most important factor is that whoever is giving the gift does not expect to be paid back. A certification to that effect will be required to be signed by the donor. Otherwise, it’s really a loan, now isn’t it? And as a responsible lender, we’re going to include that payment in your debt to income ratio, and we’ll probably want a bunch of documentation to prove the terms, etc. So, make sure it truly is a gift.

As of the date I’m writing this article, FHA will allow for down payment assistance programs, such as Nehemiah or Ameridream. Lenders view these products as “gifts” in a sense. They are basically seller concessions funneled through the down payment assistance channels. However, by the time this article is published, they may be null and void. It’s currently being reviewed and could go away. Or it may still be there, but just know it’s under review.

Lenders are very particular about how the gift funds reach the closing table. If you deposit the gift before closing, you have to show it coming out of the donor’s account and depositing into your account. It’s a lot of paper to collect. The easiest method is for Grandpa or your Great Aunt to just send a cashier’s check payable to you and your title company to the closing table. Smoother, quicker, simpler.

Gifts are a wonderful thing, and a gift of a down payment is a useful gift. After all, I think it’s safe to say that homeownership is one gift that keeps on giving, wouldn’t you?

Seller Paid Closing Costs: Knowledge Is Power

If you haven’t negotiated a bunch of home contracts, you may not be aware that you can ask the seller to pay a portion of your closing costs. Just how does that work?

When you’re considering making an offer on a home, there are other ways to get a good deal other than just snagging the lowest price you can imagine. Most loan programs allow the seller to concede money toward the buyer’s closing costs that would normally walk away with the seller in his pocket. Oftentimes, seller paid closing costs can make a home more affordable for you. You just have to make sure you stay within the allowable guidelines for the mortgage product you need.

You see, a lot depends on what type of loan you are getting. The scenarios I am going to discuss all pertain to if you are buying your primary residence, not an investment or second home. And the reason the amount that a seller can pay on your behalf varies from product to product is because different loan types have different documentation requirements, and therefore, different layering of risks. So, it’s important to compare apples to apples. The less money out of your pocket invested into your home presents a higher risk for the lender, regardless of the source of the funds to close.

For instance, I had a loan the other day where the seller had agreed to pay up to 6% of the sales price in closing costs on behalf of the borrower. Totally reasonable since the borrower was getting an FHA loan. Unfortunately, the home wasn’t up to FHA standards, and the loan had to switch to Conventional financing. Whoops. Conventional financing only allows for 3% seller concessions if one is putting less than 10% of the sales price down on the property. All of a sudden the negotiated contract wasn’t working out to the benefit of the borrower quite as nicely. She actually would be paying more for the property than she need be without the same benefit to her unless she re-negotiated a lower sales price. Why is that? Well, originally the sales price was $100,000. The seller was giving her $6,000 toward closing costs and walking away with $94,000 in his pocket. Now, Conventional underwriting guidelines would only allow him to give the buyer $3,000. So his pockets would be a bit fuller unless the buyer renegotiated.

Different loan programs have different allowable amounts for seller concessions. For instance, VA loans allow the seller to pay 4% of closing costs, and Rural Housing loans have no limit on seller paid closing costs. Conventional loans will allow up to 6% seller paids, but the buyer has to put more than 10% money down on the property. And finally, FHA allows for 6% of sales price paid on behalf of the buyer toward closing costs.

Don’t lose sight of the fact that seller paid closing costs usually don’t count toward a buyer’s minimum out of pocket investment required. For conventional and FHA, you usually have to come up with at least 3% of your own funds regardless of how much the seller is willing to help out. VA loans and Rural Home loans allow for 100% financing in most cases, so you’re good to go there. And FHA will allow the seller to participate in a down payment assistance program and contribute toward your 3% investment, but that’s a whole other article to write (and who knows if it will still be ok by the time this article makes it to print).

Your best rule of thumb is to work with a lender and realtor who know what they are doing. And if you have any doubts, your lender should be able to define your limitations for you pretty quickly. So, arm yourself with knowledge when negotiating your contract. It is always to your advantage to negotiate from a position of strength, and knowledge is power in this case.

Let My Experience Work For You!

Email your home loan financing questions to Kristin Abouelata, Home Loan Specialist with Mortgage Investors Group, at question@kristinmortgage.com or call direct: (865) 567-0113 Toll Free: 1-800-489-8910.

For more information visit her website at http://www.kristinmortgage.com/ Home Loans Plain Talk.